Hikma Pharmaceuticals PLC
13 Hanover Square
London W1S 1 HW
UK
www.hikma.com
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Delivering...
Hikma Pharmaceuticals PLC Annual report 2009
About this annual report
Hikma Pharmaceuticals PLC
Since Hikma was founded, we have grown into
a successful multinational pharmaceutical group.
Our business today is diverse in its product line
and the breadth of its geographic coverage.
This diversification will ensure that we maintain
our track record of strong growth
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Hikma Pharmaceuticals PLC Annual report 2009
01
What’s in this annual report?
1
2
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Section One Delivering...
Strong
performance
04 How we performed
05 2009 highlights
06 Chairman’s statement
08 Group at a glance
Section Two Delivering...
Our strategy
12 Chief Executive Officer’s review
28 Business and financial review
Section Three Delivering...
Responsibly
42 How we ensure that we act responsibly
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Section Four
Governance
and financial
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50 Board of Directors
52 Senior management
54 Corporate Governance report
60 Directors’ report
63 Remuneration Committee report
75 Directors’ responsibility statement
76 Independent auditors’ report
77 Consolidated financial statements
82 Notes to the consolidated
financial statements
122 Company financial statements
125 Notes to the Company financial
statements
129 Shareholder information
131 Principal Group companies
132 Advisers
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Hikma Pharmaceuticals PLC Annual report 2009
Hikma Pharmaceuticals PLC Annual report 2009
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Section One
1
1
Delivering
strong performance
04
How we performed
05
2009 highlights
06
Chairman’s statement
08
Group at a glance
04
Hikma Pharmaceuticals PLC Annual report 2009
How we performed
In 2009, Hikma significantly outpaced the
slowing global healthcare market and, despite
difficult worldwide economic conditions, achieved
record results demonstrating the strength of
our diversified business
2009 revenue
$637 million
Products marketed
382
Revenue CAGR 2004–09
+24.6%
2009 operating cash flow
$119 million
2009 operating margin
16.8%
2009 employees
4,880
2009 revenues by region
2009 revenues by segment
MENA* 63.5%
US 24.0%
Europe and RoW 12.5%
Branded 55.4%
Injectables 22.6%
Generics 21.2%
* Middle East and North Africa region (“MENA”).
05
2009 highlights
Delivered high quality sales with Group revenues up 12.5% in constant currency
Successful control of costs across the Group, while investing for future growth
Continued new product delivery – across all countries and markets with
129 products launched and 114 products approved
Excellent working capital management generating $119 million in cash
from operations
Strong balance sheet, reducing net debt by $54 million to $116.9 million
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Revenue $ million
+9.7%
Operating profit $ million
+33.0%
107.3
92.4
80.7
636.9
580.7
448.8
07
08
09
07
08
09
EBITDA1 $ million
+24.2%
Profit attributable to shareholders $ million
141.4
+36.0%
115.8
113.8
77.7
62.6
57.1
07
08
09
07
08
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Diluted earnings per share cents
Dividend per share cents
+35.5%
40.1
+46.7%
35.4
29.6
11.0
7.5
7.5
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08
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1 Reported profit before interest, tax, depreciation and amortisation.
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Hikma Pharmaceuticals PLC Annual report 2009
Chairman’s statement
Hikma has once again delivered an outstanding
performance. We have focused on integrity, high quality
sales and cost management across all areas of our
diversified business model, achieving record sales of
$637 million and 36% growth in net income
Branded
Our businesses in the Middle East and North Africa
(“MENA”) region continued to grow ahead of the
underlying markets, reinforcing our position as the
leading regional pharmaceutical manufacturer.
Injectables
While revenues in our global Injectables business were
down slightly compared to 2008, we expect that
during 2010 this business will return to the growth
profile it previously enjoyed. We continue to make
good progress in implementing our oncology strategy,
and saw Hikma’s first oncology products launched in
the MENA region during the second half of the year.
Generics
Our US Generics business had an excellent year,
achieving record sales and an impressive return
to profitability as our new US management team
implemented strategic and operational changes.
The competitive environment remained challenging
in the US but reduced competition in certain product
lines helped the recovery of this business, enabling
us to maximise our opportunities and increase
our market share in key products.
Quality
Underlying all of our achievements in 2009 was
our continued commitment to quality and integrity.
We continue to adhere to the highest quality and
ethical standards across all of our operating units
and believe these are essential to delivering long‑term
shareholder value.
Dividend
The Board is recommending a final dividend of
6.5 cents per share (approximately 4.3 pence per
share), which will make a dividend for the full year
of 11.0 cents per share, an increase of 47% on
2008. The proposed final dividend will be paid on
27 May 2010 to shareholders on the register on
16 April 2010, subject to approval by shareholders
at the Annual General Meeting.
Balance sheet developments
Our focus on working capital management during the
year has delivered excellent results. Significantly higher
operating cash flow has materially lowered our net
debt compared to 2008, strengthening our balance
sheet and giving us financial flexibility to pursue
future growth opportunities.
Shareholder value
From the Company’s listing in October 2005
through the end of 2009, we have delivered a total
shareholder return of 87.5%. We are delighted with
this performance, which exceeds that of the FTSE 250
index and the FTSE Pharmaceuticals index, which
grew by 32.5% and 17.7%, respectively, over the
same period.
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Hikma’s total shareholder return since IPO
Hikma Pharmaceuticals PLC
FTSE 250
FTSE 350/Pharmaceuticals & Biotechnology
100
80
60
40
20
10
0
-20
-40
Nov 05
May 06
Nov 06
May 07
Nov 07
May 08
Nov 08
May 09
Nov 09
Source: Factset.
Outlook
Hikma should continue to benefit from the overall
pharmaceutical market growth in the MENA region,
which we expect to remain higher than the global
pharmaceutical market. Our share of the MENA
market should also continue to increase as we further
penetrate into existing markets, expand into new
markets and grow our portfolio of own‑brand and
in‑licensed products. There also remains considerable
scope for us to grow our global Injectables business
following the significant investments we have
made in portfolio development,
sales and marketing and
manufacturing capacity.
Our US Generics business is on a strong footing and
we are confident that we can maintain the positive
momentum we have created in this business. Overall
for the Group we expect to deliver Group sales
growth in the low‑teens in 2010 and expect gross
margin to be broadly in line with the improved gross
margin we achieved in 2009.
Going forward
In summary, I am confident of the Company’s
prospects for this year and for the years to come.
This confidence is based on the diversity of our
business model and the strength of each of our
core businesses within it.
Samih Darwazah
Non-Executive Chairman
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Hikma Pharmaceuticals PLC Annual report 2009
Group at a glance
We develop, manufacture and market generic and
in-licensed pharmaceutical products within three core
businesses. Our operations span 49 countries and
focus on key therapeutic areas such as anti‑infectives,
cardiovascular, alimentary tract and CNS
Selling generic products across the US
Generics
17th largest generic company
in the US market
Focus on quality sales and high
service levels
Quality is increasingly a key
competitive advantage
Top products:
Amoxicillin
Cefaclor
Digoxin
Doxycycline
Leveraging our efficient and lower
cost manufacturing facilities in MENA
Isosorbide Mononitrate
2009 Revenue
$135.1m
+27.8%
49 products in 108 dosage
strengths and forms
Geographical area: US
Key:
Manufacturing
R&D plants
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Selling specialised injectable products globally
Injectables
2009 Revenue
$144.1m
‑3.5%
Leading manufacturer for quality
sterile injectables
Strong focus on anti‑infectives
Developing oncology platform
for manufacturing and sales
Established sales and marketing
capabilities in each operational region
88 products in 215 dosage strengths
and forms
Geographical area: Europe,
MENA, US
Top products:
Cefazolin
Cefizox
Folinic Acid
Gemcitabine
Paclitaxel
Selling branded generics and patented products across 17 MENA markets
Branded
2009 Revenue
$352.7m
+9.9%
Top products:
Actos®
Amoclan®
Blopress®
Prograf®
Suprax®
Fifth largest pharmaceutical company
in the MENA region
38% of sales from in‑licensed products
Sales team of 1,400 targeting
physicians and pharmacists across
the region
Strong anti‑infectives franchise and
increasing focus on cardiovascular
and diabetes
Leading markets are Algeria, Egypt,
Jordan and Saudi Arabia
245 products in 472 dosage strengths
and forms
Geographical area: MENA
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Hikma Pharmaceuticals PLC Annual report 2009
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Section Two
2
Delivering
our strategy
12
Chief Executive Officer’s review
28
Business and financial review
12
Hikma Pharmaceuticals PLC Annual report 2009
Chief Executive Officer’s review
2009 has been a very successful year for Hikma
in which we have made excellent progress towards
achieving our strategic objectives
Strengthening our leading position
in the MENA region
Our position as the leading regional pharmaceutical
company in the MENA region remains solidly in place.
We continue to increase our market share across the
region as a whole – expanding our product portfolio
in growing therapeutic areas and penetrating further
into new markets, while maintaining our strong
position in the field of anti-infectives. In rapidly
changing markets like Algeria, we have demonstrated
our ability to turn obstacles into opportunities –
delivering a strong performance relative to other
players in this market. Increasingly we are benefiting
from the acquisitions of Hikma Egypt and Arab
Pharmaceutical Manufacturing (“APM”) – which
are now well integrated into the Hikma Group.
Developing our global product range
in growing therapeutic areas
Our product portfolio continues to grow with 24 new
compounds and 47 new dosage strengths and forms
marketed and sold this year. A further 114 approvals
across all regions and markets ensures that we will
maintain a steady stream of new product launches in
2010. Our portfolio also continues to develop in new
therapeutic areas, with new launches in oncology,
CNS, diabetes and respiratory.
Extending our reach and diversity
through partnerships
We continue to deliver a strong performance from
our in-licensed products, which grew by 25% in
2009, reinforcing our position as the licensing partner
of choice in the MENA region. We signed three new
licensing agreements during the year that will bring
four new products into our portfolio over the coming
years and will strengthen our product offering in key
therapeutic areas. Using our local manufacturing
capabilities, we will be able to introduce these
products into multiple markets simultaneously
across the MENA region.
Increasing the scale of our speciality
Injectables business
Our efforts to build scale in our global Injectables
business continue, with 16 products launched across
our markets in 2009 and continued investment in
sales and marketing. The 41 approvals received across
all regions and geographies in 2009 will help to
deliver growth in 2010.
Leveraging our expertise and capacity
in the US market
During 2009 a considerable effort went into
continuing the turnaround of our operations in
the US, with outstanding results for the full year.
The performance of the Generics business in the US
has exceeded our expectations and I am confident
that the operational issues we have faced in the
past are well behind us. We have refocused the
business on providing higher service levels and we
13
Our strategy for growth
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Strengthen
our leading
position in the
MENA region
Develop
our global
product range
in growing
therapeutic
areas
%
%%
%%%
Extend
our reach and
diversity as a
partner of
choice in the
MENA region
Increase
the scale
of our
speciality
Injectables
business
Leverage
our expertise
and capacity
in the US
market
„„
„
Build on our
world-class
manufacturing
and API
sourcing
capabilities
are successfully utilising our high quality, lower cost
MENA manufacturing facilities in the US market.
Through well-coordinated and collaborative efforts,
our teams in the US, Jordan and Saudi Arabia have
delivered excellent results, significantly increasing
sales of our global products.
Maintaining our world class
manufacturing capabilities
I am extremely proud of our manufacturing and
regulatory personnel, whose teamwork and
commitment to the highest quality standards really
paid off this year. Our plant in Portugal passed its
FDA inspection this autumn with no observations,
demonstrating the true excellence of the Group
regulatory team. This teamwork and commitment to
excellence was reinforced in January 2010, when our
Jordanian facility (which includes a general formulation
plant, a penicillin plant, and a chemical plant) also
passed its FDA inspection,
again with no observations.
Quality is proving to be a
key differentiating factor
and our investment in
and commitment to quality
continues to deliver results.
Implementing our new organisational structure
To achieve our growth ambitions, we must have
the right personnel and systems to support them
in place. Thus, during 2009, we implemented a
new organisational structure, which was sufficiently
established to contribute to the year’s success.
The new structure created corporate-level marketing,
operational, HR and business development functions
designed to improve the efficiency of our activities
across the Group. I am confident that the new
structure will enable us to focus on efficiency and
deliver on our strategic objectives going forward.
Through our new corporate HR function we are
implementing fundamental processes that will help
us to recruit, develop, retain, engage and manage
our people, thereby supporting our short and
long-term strategic business objectives.
I am confident that the new structure will enable
us to devote an even higher focus on efficiency and
quality in all of our operations, thereby enabling us
to deliver on our strategic objectives going forward.
Said Darwazah
Chief Executive Officer
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Hikma Pharmaceuticals PLC Annual report 2009
Chief Executive Officer’s review continued
Top 10 MENA companies in 2009
MENA private market
Sanofi-Aventis
GlaxoSmithKline
Pfizer
Novartis
Hikma
Merck & Co
Spimaco
AstraZeneca
Bayer
Pharco
Rank
1
2
3
4
5
6
7
8
9
10
Value
$m
8,028
769
619
465
442
294
231
198
177
167
138
Growth
%
Market share
%
+10.0
–2.6
+13.0
+4.5
+5.5
+12.4
+3.1
+11.6
+24.0
+3.7
+14.1
100.0
9.6
7.7
5.8
5.5
3.7
2.9
2.5
2.2
2.1
1.7
All market data sourced from IMS Health, MAT December 2009. Figures reflect private retail sales in Algeria, Jordan, Kuwait, Egypt, Tunisia,
Morocco, UAE, Lebanon and Saudi Arabia.
Strong results in 2009
All of these efforts have enabled us to achieve 36%
net income growth for the Group in 2009. In the
context of the difficult economic environment,
these results are truly impressive and demonstrate
the strength of our diversified business model, our
dedicated efforts to improve efficiency and the
hard work of the Hikma teams around the world.
Looking ahead
Looking forward to 2010 and beyond, we still have
much work to do. We will be implementing the
following key initiatives to help us deliver continued
operational excellence and strong financial results.
Improving efficiency continues
to be a high priority
Because of the value to be generated, we continue
to challenge and engage every person in the Group
to innovate for efficiency while maintaining quality.
Maximising plant utilisation, lowering overheads,
reducing inventories, better cash collection – these
are just some of the areas where our people are
committed to creating value. There is always scope
to do what we do better – and every little bit helps.
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Centres of excellence in manufacturing
will enhance our global product range
Global products are integral to our growth strategy.
Developing and strengthening our global product
range is essential. Through the creation of
manufacturing centres of excellence, we have a
significant opportunity to grow sales and improve
margins by better utilising our manufacturing
facilities across the Group. In our Injectables business
we are already doing this – we manufacture in
Portugal and sell across the US, Europe and MENA.
Our oral cephalosporins, which are produced in
Saudi Arabia and sold across the MENA region
and also in the US, are another good example.
Yet numerous other opportunities remain. 2010
will see the launch of our oncology products in the
MENA region and continuing efforts to prepare our
oncology manufacturing plant in Germany for the
manufacture of FDA approved products. We expect
to leverage further our cephalosporin plant in Saudi
Arabia and our penicillin and general formulation
plants in Jordan to produce not just for MENA but
also for the US and, in some cases, Europe.
Strengthening Group communications
Improving communication across the Group is
also critical. Strong communication and excellent
teamwork paid off in 2009 from a regulatory
perspective. The US turnaround was also made easier
by the well coordinated efforts of the US, Jordanian
and Saudi teams previously mentioned. Facilitating
communication across departments and geographies
in our rapidly expanding Group will remain a priority.
Growing through acquisitions
We remain very ambitious for the longer-term
prospects for the Group and we have an excellent
track record for making successful acquisitions and
integrating them swiftly. Acquisitions in the MENA
region remain a priority – both to enter new markets
and develop our position in existing markets. We will
also continue to look for opportunities in Europe,
the US and Asia, particularly when it comes to
acquiring new global products and new technologies.
Developing new partnerships
Our commitment to developing our in-licensed
portfolio remains very much intact. We believe
that we remain the clear partner of choice in
the MENA region for licensing opportunities,
as the recent additions to our in-licensed
portfolio demonstrate.
Investing in our people
As a company we have always been committed to
developing our people. As the Group grows, this is
increasingly important. We will continue to challenge
ourselves to improve and commit to providing the
opportunities necessary for our teams to develop.
Striving to make Hikma the employer of choice will
ensure we retain the skills required to take our
business forward.
Going forward
I am very excited by the opportunities we have
to expand our business in 2010 and beyond.
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Said Darwazah
Chief Executive Officer
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Hikma Pharmaceuticals PLC Annual report 2009
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DELIvErING OUr StrAtEGy
Strengthening our leading position
in the MENA region
16.28
Manufactured
in Algeria...
9 General formulation manufacturing facility, Algiers, Algeria
In many markets in the MENA region, local manufacturing
is critical to establishing a strong market presence. We are
committed to developing our manufacturing capabilities in
Algeria in order to better serve the Algerian market. We expect
our Algerian manufacturing capacity to double over the next
three years.
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13.28
... Administered
in Algeria
9 Patients in Algeria are benefiting from our locally produced products
We worked hard in 2009 to build our market share in Algeria,
particularly in the important cardiovascular and metabolic
therapeutic areas. Making a wide range of high quality products
available to patients in Algeria is also a key priority. three new
products were launched in Algeria in 2009.
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Hikma Pharmaceuticals PLC Annual report 2009
DELIvErING OUr StrAtEGy
Developing our global product range
in growing therapeutic areas
06.57
Manufactured
in Germany...
9 Oncology manufacturing facility, vienenburg, Germany
We made excellent progress in the development of our
oncology business in 2009. We are now producing four of
our own oncology products at our cytotoxic manufacturing
facility in Germany. this facility has been inspected by health
authorities from across Europe and the MENA region and
we are working hard to prepare the facilities for production
for the US market.
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09.57
... Administered
in Jordan
9 Hikma is making cancer treatment more
accessible to patients in Jordan
Following the initial launch of our injectable oncology products
in Jordan and yemen in the second half of 2009, patients in
the Middle East now have access to our high quality generic
oncology products. We have an excellent opportunity to build
a leading oncology business in the MENA region and plan
a further four oncology launches in 2010.
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Hikma Pharmaceuticals PLC Annual report 2009
%
%%
%%%
DELIvErING OUr StrAtEGy
Extending our reach and diversity as a partner
of choice in the MENA region
08.45
Manufactured
in Jordan...
9 General formulation manufacturing facility, Salt, Jordan
APM’s manufacturing facilities in Salt are now fully integrated
into the Hikma Group and are helping us to serve our growing
markets in the MENA region. Currently, these facilities produce
products, including some of our important in-licenced products,
for sale across 22 countries. Output will increase in terms of
volumes produced, products produced and markets served as
we work to transform these facilities into a manufacturing
“centre of excellence” for the MENA region.
21
11.45
... Administered
in Egypt
9 Actos®, the leading type 2 diabetes treatment,
is now available to patients in Egypt
As our product portfolio grows, we are enhancing the range
of high quality and affordable products available to patients
across the MENA region. In 2009, our product offering
expanded to 245 products in 472 dosage strengths and forms,
including 40 in-licenced products. Seven new products were
launched in Egypt, including Actos®, tanatril®(imidapril),
Blopress® and Omnicef®.
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Hikma Pharmaceuticals PLC Annual report 2009
DELIvErING OUr StrAtEGy
Increasing the scale of our speciality
Injectables business
11.42
Manufactured
in Portugal...
9 Sterile injectable manufacturing facility, Sintra, Portugal
Our sterile injectable manufacturing facilities in Portugal
produce high quality injectable products for the US, European
and MENA markets. these facilities are producing sterile
liquids and cephalosporins and we have recently added
significant lyophilisation capacity.
23
08.42
... Administered
in Germany
9 Our sterile injectable products are reaching patients across Europe
In Europe, we currently sell 23 compounds in 78 dosage
strengths and forms. We have a strong presence in Germany,
Portugal and Italy and are also rolling out our products
in Austria, Spain and the Netherlands as well as in other
new markets.
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Hikma Pharmaceuticals PLC Annual report 2009
DELIvErING OUr StrAtEGy
Leveraging our expertise and capacity
in the US market
13.32
Manufactured
in Saudi Arabia...
9 Dedicated cephalosporin manufacturing facility,
riyadh, Saudi Arabia
Our manufacturing facility in Saudi Arabia has been approved
by the US FDA for the production of oral cephalosporins.
In 2009 we more than doubled our exports from Saudi Arabia
to the US.
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10.32
... Administered
in the
United States
9 Our leading anti-infectives are being dispensed to patients in the US
Demand for our oral anti-infectives, which we manufacture at
our facilities in Jordan and Saudi Arabia, grew significantly in
2009. We increased our market share of Cephaclor, one of our
leading cephalosporins, from 1% to nearly 30% for the year.
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Hikma Pharmaceuticals PLC Annual report 2009
„„
„
DELIvErING OUr StrAtEGy
Building on our world-class manufacturing
and API sourcing capacities
17.15
Manufactured
in Jordan...
9 General formulation manufacturing facility, Amman, Jordan
Our high quality general formulation, penicillin and chemical
manufacturing facilities in Jordan produce a broad range of
products for sale across the MENA region and increasingly
for the US and Europe. through our focus on efficiency, our
manufacturing facilities in Jordan increased volumes in 2009
while keeping costs constant.
27
16.15
... Administered
in Iraq
9 Our leading anti-infectives are reaching patients in Iraq
Demand for our leading anti-infectives Amoclan® and Suprax®
grew significantly in Iraq in 2009. Hikma’s overall sales to Iraq
more than doubled as we launched new products and worked
hard to rebuild our sales and marketing capabilities in this
recovering market. A total of six new products and 10 new
dosage strengths and forms were launched in Iraq in 2009.
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Hikma Pharmaceuticals PLC Annual report 2009
Business and financial review
Hikma’s diversified business delivered record sales
and 36% earnings growth in 2009
The Directors are pleased to present their report
and audited financial statements for the year ended
31 December 2009. For the purposes of this report,
“Company” means Hikma Pharmaceuticals PLC
and “Group” means the Company and its subsidiary
and associated undertakings.
Key performance indicators
The Board measures progress on our strategic
objectives by reference to five key financial
performance indicators (“KPIs”) applied on a
Group‑wide and segmental basis. These same
indicators are used by the executive management
to manage the business. Performance in
2009 against these indicators is set out in
the table below, together with the prior year
performance data.
Hikma’s key performance indicators1
2009
2008
Revenue growth
+9.7% +29.4%
Operating profit growth/
revenue growth
Total working capital days
3.4x
230
Return on invested capital
10.6%
New product launches
24
–0.4x
236
8.7%
17
Group performance
Revenue for the Group increased by 9.7% to
$636.9 million, compared to $580.7 million in
2008. During the period our Branded business
continued to perform well and we saw a considerable
improvement in our US Generics business compared
to 2008. These strong performances were partially
offset by a slight decline in Injectables revenues
compared to 2008, reflecting the impact of negative
foreign exchange movements and our strategic
decision to curtail private label sales in the US.
Exchange rate movements had a negative impact
on Group revenue of approximately $16.3 million,
or 2.6%, and on Group operating profit of
approximately $8.3 million, or 7.8%. The impact
on sales resulted primarily from the strengthening
of the US Dollar relative to the Euro, Algerian Dinar,
Sudanese Pound and Egyptian Pound. The impact on
operating profit resulted from the strengthening of
the US Dollar relative to the Algerian Dinar, Sudanese
Pound and Egyptian Pound. On a constant currency
basis, Group revenues increased by 12.5%.
Revenue by segment
Branded
Injectables
Generics
2009
2008
55.4%
55.3%
22.6%
25.7%
21.2%
18.2%
1 As of 2009, the Board is using an amended set of key performance
indicators that better reflect the Group performance.
29
General and administrative expenses increased
by 17.3% to $66.7 million, compared to $56.9 million
in 2008. This is due to an increase in the cost of
Group‑wide employee compensation and incentive
schemes and an increase in bad debt provisions of
approximately $2 million. General and administrative
expenses as a percentage of sales increased to
10.5%, from 9.8% in 2008.
Investment in R&D decreased by 24.0% to
$16.8 million, with total investment in R&D now
representing 2.6% of Group revenue, compared
to 3.8% in 2008. The decline in 2009 came from
reduced investment in bioequivalence studies for
our US Generics business and increased emphasis
on in‑licensing and acquisition of new products.
Going forward, we expect to increase our investment
in R&D as a percentage of sales as we re‑focus our
efforts on developing our global product portfolio
and on the fast growing field of oncology.
Other net operating expenses increased by
$9.3 million to $15.5 million in 2009. This increase
is due primarily to an increase in provisions for slow
moving items and foreign exchange losses resulting
mainly from the depreciation in the Algerian and
Sudanese currencies and the Euro.
Operating profit for the Group increased by
33.0% to $107.3 million, compared to $80.7 million
in 2008. Our Group operating margin improved by
three percentage points to 16.8% compared to
13.9% in 2008.
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Revenue by region
MENA
US
2009
2008
63.5%
63.0%
24.0%
22.5%
Europe and Rest of World
12.5%
14.5%
The Branded business continues to represent 55%
of Group sales and the combined Branded and
Injectables sales in MENA now make up 63.5%
of total Group sales.
The Group’s gross profit increased by 18.7% to
$304.4 million, compared to $256.5 million in 2008.
Group gross margin was 47.8%, compared to
44.2% in 2008, and well ahead of the targeted two
percentage point improvement that we set at the
beginning of the year. This improvement primarily
reflects the increase in profitability in our Generics
business, which was driven by strategic price increases
across our portfolio and a shift in product mix. Production
efficiencies and our continued efforts to optimise our
API sourcing also delivered cost benefits during the year.
Group operating expenses grew by 12.1% to
$197.1 million, compared to $175.8 million in 2008,
but as a percentage of sales remained relatively stable
at 31.0%, compared to 30.3% in 2008. The paragraphs
below address the Group’s main operating expenses
in turn.
Group sales and marketing expenses grew more
slowly than Group sales during the year, increasing
by 8.3% to $98.1 million, compared to $90.6 million
in 2008. Consequently sales and marketing expenses
decreased slightly as a percentage of sales from
15.6% in 2008 to 15.4%. This reflects better control
of sales and marketing expenses in the Branded
business, despite continued investment in developing
our sales and marketing capabilities across the region,
and strong growth in the Generics business, with its
lower associated sales and marketing costs.
The MENA pharmaceutical market
Branded revenues up 13.1% in constant currency
Strong demand for our leading anti‑infectives
Top 9 MENA markets
30
Hikma Pharmaceuticals PLC Annual report 2009
Business and financial review continued
Branded
2009 highlights:
Successful development of our cardiovascular
and diabetes business
Excellent progress in the rollout of key
in‑licensed products
Branded revenues increased by 9.9% in 2009 to
$352.7 million, compared to $320.8 million in 2008.
In constant currency, Branded revenues increased
by 13.1%. Prioritising high quality sales and
continued investment in developing our sales and
marketing capabilities helped to increase customer
demand across most Branded markets and to develop
some of our newer markets including Iraq, Egypt,
Sudan and Libya. We continued to focus on promoting
new and recently launched products in key therapeutic
areas and on building greater brand recognition across
the MENA region.
As a result of these efforts, Hikma is the largest
regional pharmaceutical company in the MENA region
and the fifth largest pharmaceutical company overall
in the MENA region, with a market share1 of 3.7%,
up from 3.4% at the end of 2008.
Our business in Algeria performed well in 2009,
considering regulatory changes introduced during the
year. At the end of December, our market share in
Algeria had increased to 6.9%, compared to 6.4%
at the end of December 2008, and we improved
our market position. At the end of December 2009,
Hikma was the second largest pharmaceutical
company and the largest generic pharmaceutical
manufacturer by value in the Algerian market.
We have expanded our product portfolio during
the year, which now includes cardiovascular
products such as Blopress® (candesartan) and
Iminopril® (imidapril), the oral diabetes products
Actos® (pioglitazone) and Glorion® (glimepiride),
and the dyslipidemia product Torvast® (atorvastatin).
We expect that the recent regulatory changes
in Algeria, which included government imposed
limitations on imports and sales, reductions in the
pricing of locally produced products and the need
1 All market data sourced from IMS Health, MAT December 2009. Figures
reflect private retail sales in Algeria, Jordan, Kuwait, Egypt, Tunisia,
Morocco, UAE, Lebanon and Saudi Arabia.
2009
Value
$m
8,028
1,895
1,754
1,626
963
588
447
439
184
130
Growth
%
+10.0
+16.4
+12.8
–1.4
+5.3
+20.5
+13.4
+15.6
+14.5
+2.1
Egypt
Saudi Arabia
Algeria
Morocco
UAE
Lebanon
Tunisia
Jordan
Kuwait
Source: IMS health MAT December 2009. Private retail sales only.
to trade through confirmed letters of credit, will
continue to impact the pharmaceutical market in
Algeria in 2010. In the past we have demonstrated
our ability to manage disruptions in this frequently
changing environment. We expect that the expansion
of our local production capacity, the optimisation
of our sales channels and our enhanced sales and
marketing efforts will enable us to address these
issues and continue to perform ahead of the market.
In Saudi Arabia, our specialist cardiovascular sales
team is focusing on building a leading position in the
treatment of chronic heart conditions and diabetes
through the promotion of key products like Blopress®,
Actos® and Glorion®. At the same time, we continue
Hikma market share in key markets
Jordan
Algeria
Saudi Arabia
Egypt
Rank
1
2
4
19
Market
share
12.9%
6.9%
5.4%
1.4%
Source: IMS health MAT December 2009. Private retail sales only.
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to see steady demand for our leading anti‑infectives
in this market. At the end of December, our market
share in Saudi Arabia had increased to 5.4%,
compared to 4.9% at the end of December 2008.
We are now the fourth largest pharmaceutical
company by value in the Saudi market, compared
to the fifth largest at the end of December 2008.
In Jordan we have maintained our position as
the market leader with a market share of 12.9%,
up from 12.4% at the end of December 2008.
We delivered a strong performance in Jordan during
the period supported by strong sales of our leading
anti‑infectives and tender sales.
of inflammatory intestinal disease, and one for
the license to manufacture and market the novel
anti‑histamine Bilastine®.
In December 2009, Astellas Pharma Europe, Ltd.
granted Hikma the license to promote and distribute
Advagraf®, Astellas’ prolonged‑release once‑daily
formulation of Prograf®, the immunosuppressant
tacrolimus, in the MENA region. Through this
agreement, Astellas grants exclusive rights to
Hikma for the distribution and promotion of
Advagraf® across 17 MENA countries. Hikma will
also continue to distribute and promote Prograf®
in the same territories.
In Egypt, we delivered strong growth across most
In early January 2010, we signed an exclusive
of our product portfolio and began the rollout of
some of our key Branded products, including Actos®,
Tanatril® (imidapril) Blopress®, and Omnicef®. At the
end of December, our market share in Egypt was
stable at 1.4%.
Other markets that performed well during
the year were Iraq, Sudan, Libya and Lebanon,
where we benefited from more favourable
operating environments, strong demand for our
own brands, and the launches of some of our
leading in‑licensed products.
Revenue from in‑licensed products grew by 24.9%
in 2009 to $133.6 million, representing 37.9% of
Branded sales. Actos® has now been launched in 13
markets, Blopress® has been launched in 15 markets,
and Blopress Plus® and Takepron® have been launched
in nine markets. Our sales and marketing teams are
working hard to establish these products as leading
cardiovascular and diabetes brands in the MENA
through a combination of medical education
programmes, sponsorship of scientific conferences
and targeted marketing campaigns.
We continue our efforts to develop our portfolio
of in‑licensed products, evidenced by the signing
of three new licensing agreements during the
year. In June we signed an agreement with
Teikoku Pharma USA for our own brand of
Lidoderm®, the first and only US FDA approved patch
for post‑herpetic neuralgia. This agreement covers
the territories of Algeria, Morocco, Iraq, Libya, Sudan,
and Tunisia. In July, we signed two agreements with
Faes Farma SA, a Spanish manufacturing company
– one for the manufacturing and marketing of
mesalazine, a generic product used for the treatment
agreement to represent BioCryst, a US‑based
biotechnology company, in respect of its anti‑viral
product Peramivir for pandemic flu treatment
stockpiling opportunities with governments in
MENA region.
All of these agreements reflect our position
as the partner of choice for marketing branded
products in the region.
In 2009, the Branded business launched a total
of 71 products across all markets, including six
new compounds and 18 new dosage forms and
strengths. The Branded business also received 69
regulatory approvals across the region, including
10 for new products.
Gross profit in the Branded business increased by
8.6% to $187.6 million, compared to $172.8 million
in 2008. The Branded business’s gross margin
declined slightly to 53.2%, compared to 53.9% in
2008, reflecting the depreciation of the Algerian
Dinar, Sudanese Pound and Egyptian Pound.
Branded operating profit increased by 4.5% to
$91.4 million, compared to $87.5 million in 2008.
Operating margin in the Branded business was
25.9%, compared to 27.3% in 2008. This change is
mainly due to the negative impact of exchange rates
described above.
In 2010, we expect low double digit revenue
growth in our Branded business, with sales spread
more evenly over the course of the year than in
previous years, reflecting a shift in the geographic and
product sales mix. If foreign exchange rates remain
stable in 2010, we expect Branded operating margins
to be broadly in line with 2009.
32
Hikma Pharmaceuticals PLC Annual report 2009
Business and financial review continued
Injectables
2009 highlights:
Injectables revenues down 3.5% to $144.1 million
14% growth in Injectables sales in the MENA region
Strategic decision to curtail private label sales
in the US
Successful FDA inspection of our sterile
manufacturing facilities in Portugal with
zero observations
Injectables revenues across all regions recovered in
the second half of the year, enabling us to close
the year only slightly down on 2008, with sales of
$144.1 million, compared to $149.3 million in 2008.
The slight decline in full year sales was due primarily
to our decision to curtail private label sales in our
US business and the depreciation in the Algerian
and Sudanese currencies and the Euro.
2009 Injectable revenues (by region)
Europe
US
MENA
45.0%
11.8%
43.2%
MENA Injectables sales increased by 14.0% to
$62.3 million, compared to $54.7 million in 2008.
On a constant currency basis, MENA Injectables sales
grew by 18.5%. This increase is attributed to strong
growth in Iraq and Algeria, an increasing contribution
from existing markets like Lebanon and Jordan,
and an initial contribution from newly launched
oncology products.
Having successfully built a hospital sales force in
the US, we now have greater capability to market
our own products in this market. In the second half
of the year we more than doubled own product sales,
benefiting from a new supply agreement signed with
a leading group purchasing organisation and from
new product launches.
Due to a strategic decision to curtail private label
sales (approximately $11 million in 2008), US Injectables
sales declined year on year to $17.0 million, from
$24.8 million in 2008.
European Injectable sales reached $64.8 million
in 2009, down 7.3% from $69.9 million in 2008.
The decline is attributed to the depreciation of the Euro,
a loss of $3.6 million in sales from a discontinued
in‑licensed product and continued pricing pressure
in Germany, our largest market. This was partially
offset by increased sales from new product launches
and an increase in market share in some of our
newer markets.
In 2009, the Injectables business launched a total
of 55 products across all markets, including 16 new
compounds and 26 new dosage forms and strengths.
The Injectables business also received a total of 41
regulatory approvals across all regions and markets,
including 24 in MENA, nine in Europe and eight in
the US.
Injectables gross profit decreased by 0.7% to
$62.9 million, compared to $63.4 million in 2008,
with gross margin increasing to 43.7%, compared
to 42.4% in 2008. The increase in margin reflects
the increase in sales from the MENA region as a
percentage of total Injectables sales.
Injectables operating profit decreased by 30.6%
to $15.3 million, compared to $22.1 million in 2008.
Injectables operating margin decreased to 10.7%
in 2009, down from 14.8% in 2008. This decline is
explained by lower sales in the US and Europe and
increasing operating expenses relating to higher sales
and marketing expenses in MENA and the US and
an increase in foreign exchange losses.
Following the investments we have been making
in our Injectables business in recent years, we expect
strong growth in Injectables sales in 2010 driven
by our expanding product portfolio, increasing
demand for contract manufacturing and continuing
momentum in sales, particularly in the MENA region
and the US.
33
US generic market
Total prescriptions written (m)
2,254
MAT Jan
2009
MAT Jan
2010
2,418
Market growth
+9.5%
+7.2%
Source: IMS Health MAT January. Number of prescriptions filled in the
US generics market for oral pharmaceuticals.
All of these actions led to an increase in Generics
gross profit of 172.1% to $52.5 million, compared
to $19.3 million in 2008. Gross margin more than
doubled from 18.3% in 2008 to 38.9% in 2009.
Consequently, the Generics segment achieved an
operating profit of $25.0 million in 2009, compared
to an operating loss of $5.8 million in 2008. Generic
operating margins reached 18.5% in 2009.
In 2009, the Generics business launched two new
compounds in three new dosage forms and strengths.
Having returned to profitability in our Generics
business in 2009, we are confident that this business
will continue to perform well in 2010 and currently
expect high single‑digit sales growth for the full year.
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Generics
2009 highlights:
Delivered significant improvement in Generics
revenues, up 27.8%
More than doubled gross margin to 38.9%, up from
18.3% in 2008
Revenue in our Generics business increased by 27.8%
to $135.1 million, compared to $105.7 million in 2008.
This strong performance reflects the actions of the
strengthened US management team and in particular
focused sales, marketing and operational improvements.
Over the past 18 months we have rationalised our
product portfolio, increased our focus on our higher
margin products and implemented price increases
across our portfolio. Through focused sales targeting
and improved service levels, we have been developing
better relationships with key wholesale and retail
customers, and are consequently improving the
predictability of our revenue streams. At the same
time our operations have become more efficient.
The strong performance also reflects the changing
competitive landscape in the US. The absence of some
of our competitors from the market has created new
opportunities, increasing demand across our product
portfolio and reducing our reliance on any one product.
Demand has been particularly strong for the anti‑infectives
we produce at our FDA approved facilities in Jordan
and Saudi Arabia. During 2009 we tripled sales of
anti‑infectives produced at these facilities.
Generics sales by customer type
08
09
Wholesalers
08
09
08
09
08
09
Chains
Core distributors
Mail order and
managed care
08
09
Private label
08
09
Other
Source: Company data.
34
Hikma Pharmaceuticals PLC Annual report 2009
Business and financial review continued
Other businesses
Other businesses primarily comprise Arab Medical
Containers (“AMC”), a manufacturer of
pharmaceutical packaging, and International
Pharmaceuticals Research Centre, which conducts
bio‑equivalency studies. These businesses, which
supply third parties as well as other Group operations,
had aggregate revenues of $5.1 million, compared
with aggregate revenue of $4.8 million in 2008.
This represented 0.8% of Group revenues in 2009.
These Other businesses delivered an operating
loss of $2.3 million in 2009, compared to an operating
loss of $3.7 million in 2008. The slight improvement
can be attributed to increased efficiencies in corporate
research and development costs.
Hikma’s product portfolio
Research and development1
The Group’s product portfolio continues to grow.
In 2009 we launched 24 new compounds, expanding
the Group portfolio to 382 compounds in 795 dosage
forms and strengths. We manufacture and/or sell 40
of these compounds under‑license.
Across all businesses and markets, a total of
129 products were launched. In addition, the Group
received 114 approvals.
To ensure the continuous development of our
product pipeline, we submitted 190 regulatory
filings in 2009 across all regions and markets. As of
31 December 2009, we had a total of 527 pending
approvals2 across all regions and markets.
Total marketed products
Products launched in 2009
Compounds
Dosage forms
and strengths
New
compounds
New dosage
forms and
strengths
Total launches
across all
countries2
245
88
49
382
472
215
108
795
6
16
2
24
18
26
3
47
71
55
3
129
Products approved in 2009
Products pending approval as at 31 December 2009
New
compounds
New dosage
forms and
strengths
Total approvals
across all
countries2
New
compounds
New dosage
forms and
strengths
10
20
3
33
10
14
4
28
69
41
4
114
47
45
24
116
97
62
31
190
Total pending
approvals
across all
countries2
2493
2473
31
527
Branded
Injectables
Generics
Group
Hikma’s product pipeline
Branded
Injectables
Generics
Group
1 Products are defined as pharmaceutical compounds sold by the Group.
New compounds are defined as pharmaceutical compounds not yet
launched by the Group and existing compounds being introduced into
a new segment.
2 Total includes all compounds and formulations that are either launched,
approved or pending approval accross all markets.
3 Includes all submissions made for the first time in a particular market,
but excludes re‑submissions, which have historically been included in
this calculation.
35
We estimate the approximate addressable market for
our portfolio of pending approvals to be approximately
$27 billion, based on the 2009 full year sales of the
currently marketed equivalent products in the markets
covered by the pending approvals.
At 31 December 2009, we had a total of 71 new
products under development, the majority of which
should receive several marketing authorisations for
differing strengths and/or product forms over the
next few years.
Net finance expense
Net finance expense decreased to $12.3 million,
compared to $16.7 million in 2008 due to
lower interest rates and lower net debt levels
as explained in the operating cash flow and
investment section below.
Profit before tax
Profit before taxes for the Group increased by 48.0%
to $94.8 million, compared to $64.0 million in 2008.
Tax
The Group incurred a tax expense of $15.5 million
in 2009. The effective tax rate was 16.3%, compared
to 10.8% in 2008. The increase in the effective
tax rate reflects the return to profitability in our
US Generics business.
Non-controlling interest
The profit attributable to non‑controlling interest was
negative $1.6 million in 2009. This primarily arose
on profits in our 51% owned subsidiary in Sudan.
Profit for the year
The Group’s profit attributable to equity holders
of the parent increased by 36.0% to $77.7million.
On constant currency, growth in profit attributable
to equity holders of the parent increased by 49.9%.
Adjusted profit for the year
Excluding the amortisation of intangible assets
(other than software), the Group’s adjusted profit
for the year attributable to equity holders of the
parent increased by 24.1% to $83.6 million for
the year ended 31 December 2009, compared
with $67.43 million in 2008.
Earnings per share
Diluted earnings per share for the year to
31 December 2009 were 40.1 cents, up 35.6%
from 29.6 cents in 2008.
Dividend
The Board has recommended a final dividend of
6.5 cents per share (approximately 4.3 pence per
share), which will make a dividend for the full year
of 11.0 cents per share, up from 7.5 cents per share
in 2008, an increase of 46.7%. The proposed final
dividend will be paid on 27 May 2010 to shareholders
on the register on 16 April 2010, subject to approval
by shareholders at the Annual General Meeting.
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Hikma Pharmaceuticals PLC Annual report 2009
Business and financial review continued
Operating cash flow and investment
The Group achieved an overall improvement in
working capital for the period, reducing its working
capital days by six days. Improvement was made in
the MENA region and in Europe, where we generated
significant cash flow from operations. This increase is
a reflection of our continued focus on improving
collections, increased factoring of receivables and a
leaner supply chain. This improvement was offset,
however, by our US Generics business, where
receivables increased due to a change in customer
mix and where a planned increase in inventories is
helping us to maintain high service levels and
improve profitability.
Group receivable days increased by seven days
compared to 31 December 2008, from 109 days to
116 days as at 31 December 2009. Inventory days
increased by three days to 177 days reflecting an
increase in inventories in the US related to our efforts
to improve service levels. Increases in receivable and
inventory days were offset by an improvement in
payable days of 15 days.
Working capital improvements coupled with
improved profitability led to a significant increase
in operating cash flow to reach $119.0 million,
compared to $75.0 million in 2008.
Operating cash flow $ million
+58.7%
119.0
75.0
53.3
07
08
09
Balance sheet
Capital expenditure declined to $37.0 million
from $56.7 million in 2008. During the period,
expenditure was focused on the completion of our
new lyophilisation plant in Portugal, the expansion of
our manufacturing capacity in Algeria and Egypt and
overall maintenance capex across all of our facilities.
We will increase capital expenditure in 2010 as we
expand our manufacturing capacity in the MENA
region to support demand for our global products.
As a result of working capital improvements
and reduced capital expenditure, net debt decreased
from $170.9 million as at 31 December 2008 to
$116.9 million as at 31 December 2009 keeping
the Group in a very strong financing position.
Outlook
Hikma should continue to benefit from the overall
pharmaceutical market growth in the MENA region,
which we expect to remain higher than the global
pharmaceutical market. Our share of the MENA
market should also continue to increase as we further
penetrate into existing markets, expand into new
markets and grow our portfolio of own‑brand and
in‑licensed products. There also remains considerable
scope for us to grow our global Injectables business
following the significant investments we have made
in portfolio development, sales and marketing and
manufacturing capacity. Our US Generics business is
on a strong footing and we are confident that we can
maintain the positive momentum we have created
in this business. Overall for the Group we expect to
deliver Group sales growth in the low‑teens in 2010
and expect gross margin to be broadly in line with
the improved gross margin we achieved in 2009.
Basis of preparation and
forward-looking statements
This business and financial review has been prepared
solely to provide additional information to shareholders
to assess the Company’s strategies and the potential
for those strategies to succeed, and should not be
relied on by any other party or for any other purpose.
Certain statements in the above review are forward‑
looking statements – using words such as “intends”,
“believes”, “anticipates” and “expects”. Where
included, these have been made by the Directors
in good faith based on the information available to
them up to the time of their approval of this report.
By their nature, forward‑looking statements are
based on assumptions and involve inherent risks and
uncertainties that could cause actual results or events
to differ materially from those expressed or implied
by the forward‑looking statements, and should be
treated with caution. These risks, uncertainties or
assumptions could adversely affect the outcome and
financial effects of the plans and events described
in this review. Forward‑looking statements contained
in this review regarding past trends or activities should
not be taken as a representation that such trends or
activities will continue in the future. You should not
place undue reliance on forward‑looking statements,
which speak as only of the date of the approval
of this report.
Except as required by law, the Company is under
no obligation to update or keep current the forward‑
looking statements contained in this review or to
correct any inaccuracies which may become apparent
in such forward‑looking statements.
37
Principal risks and uncertainties
The Group’s business faces risks and uncertainties
The section below includes the principal risks and uncertainties that
the Group considers could have a significant effect on its financial
condition, results of operations or future performance. The list is not
set out in order of priority and other risks, currently unknown or
not considered material, could have a similar effect.
!
OPERATIONAL RISKS:
Risk
Potential impact
Mitigation
Compliance with cGMP
Non-compliance with
manufacturing standards
(often referred to as
“Current Good Manufacturing
Practices” or cGMP)
– Delays in supply or an
inability to market or develop
the Group’s products
– Commitment to maintain the
highest levels of quality across
all manufacturing facilities
– Delayed or denied approvals for
the introduction of new products
– Strong global compliance function
that oversees across the Group
– Product complaints or recalls
– Bans on product sales or
importation
– Disruptions to operations
– Litigation
– Remuneration and reward
structure that helps retain
experienced personnel
– Continuous staff training
Risk
Potential impact
Mitigation
Disruptions in the manufacturing
supply chain
– Inability to procure active
ingredients from approved sources
– Inability to procure active
ingredients on commercially
viable terms
– Inability to procure the quantities
of active ingredients needed to
meet market requirements
– Inability to supply finished
product to our customers in
a timely fashion
– Failure to develop and/or
commercialise new products
– Delays in marketing existing
products
– Alternate approved suppliers
of active ingredients
– Long-term relationships with
reliable raw material suppliers
– Lost revenue streams on
– Corporate auditing team
short notice
– Reduced service levels
and damage to customer
relationships
continuously monitors regulatory
compliance of API suppliers
– Focus on improving service levels
and optimising our supply chain
Risk
Potential impact
Mitigation
Product development
Failure to secure new products
or compounds for development,
either through internal research
and development efforts,
in-licensing, or acquisition
– Inability to grow sales and
increase profitability for
the Group
– Lower return on investment
in research and development
– Experienced and successful
in-house research and
development team
– Strong business development team
– Track record of building
in-licensed brands
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Hikma Pharmaceuticals PLC Annual report 2009
Principal Risks and Uncertainties continued
!
OPERATIONAL RISKS continued:
Risk
Potential impact
Mitigation
Commercialisation of new products
– Delays in the receipt of marketing
approvals, the authorisation of
price and reimbursement
– Lack of approval and acceptance of
new products by physicians, patients
and other key decision-makers
– Inability to confirm safety,
efficacy, convenience and/or cost-
effectiveness of our products as
compared to competitive products
– Inability to participate in
tender sales
Risk
Partnerships
Inability to renew or extend
in-licensing or other partnership
agreements with a third-party
– Slowdown in revenue growth
from new products
– Inability to deliver a positive
return on investments in
R&D, manufacturing and sales
and marketing
Potential impact
– Loss of products from
our portfolio
– Revenue interruptions
– Failure to recoup sales and
marketing and business
development costs
– Experienced regulatory teams able
to accelerate submission processes
across all of our markets
– Highly qualified sales and
marketing teams across all markets
– A diversified product pipeline
with 63 new compounds pending
approval, covering a broad range
of therapeutic areas
– A systematic commitment to quality
that helps to secure approval and
acceptance of new products and
mitigate potential safety issues
Mitigation
– Long-term relationships with
existing in-licensing partners
– Experienced legal team capable of
negotiating appropriate agreements
with licensing partners
– Continuous development of new
licensing partners
– Diverse revenue model
with in-house research and
development capabilities
Risk
Potential impact
Mitigation
Regulation
Unanticipated legislative and
other regulatory actions and
developments concerning various
aspects of the Group’s operations
and products
– Restrictions on the sale of one
– Local operations in most of our
or more of our products
key markets
– Restrictions on our ability to sell
our products at a profit
– Unexpected additional costs
required to produce, market
or sell our products
– Increased compliance costs
– Strong oversight of local regulatory
requirements to help anticipate
potential changes to the regulatory
environments in which we operate
– Representation and/or affiliation
with local industry bodies
Risk
Potential impact
Mitigation
Economic and political and
unforeseen events
– The failure of control, a change
in the economic conditions or
political environment or sustained
civil unrest in any particular
market or country
– Unforeseen events such as fire or
flooding could cause disruptions
to manufacturing or supply
– Disruptions to manufacturing
and marketing plans
– Lost revenue streams
– Inability to supply products
– Geographic diversification, with
12 manufacturing facilities and
sales in more than 40 countries
– Product diversification, with 382
products and 795 dosage strengths
and forms
Risk
Potential impact
Mitigation
Litigation
– Commercial, product liability
and other claims brought against
the Group
– Finacial impact on Group
results from damages awards
– Reputational damage
– In-house legal counsel with
relevant jurisdictional experience
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FINANCIAL RISKS:
Risk
Potential impact
Mitigation
Foreign exchange risk
Exposure to foreign exchange
movements, primarily in the
European, Algerian, Sudanese
and Egyptian currencies
– Fluctuations in the Group’s net
asset values and profits upon
translation into US dollars
– Entering into currency derivative
contracts where possible
– Foreign currency borrowing
– Matching foreign currency
revenues to costs
Risk
Potential impact
Mitigation
Interest rate risk
Volatility in interest rates
– Fluctuating impact on profits
before taxation
– Optimisation of fixed and
variable rate debt as a
proportion of our total debt
– Use of interest rate
swap agreements
Risk
Potential impact
Mitigation
Credit risk
– Inability to recover trade
receivables
– Concentration of significant trade
balances with key customers in
the MENA region and the US1
– Reduced working capital funds
– Risk of bad debt or default
– Clear credit terms for
settlement of sales invoices
– Group Credit policy limiting
credit exposures
– Use of various financial
instruments such as letters
of credit, factoring and credit
insurance arrangements
Risk
Potential impact
Mitigation
Liquidity risk
Insufficient free cash flow and
borrowings headroom
– Reduced liquidity and working
capital funds
– Inability to meet short-term
working capital needs and,
therefore, to execute our
long-term strategic plans
– Continual evaluation of
headroom and borrowing
– Committed debt facilities
Risk
Potential impact
Mitigation
Tax
Changes to tax laws and
regulations in any of the
markets in which we operate
– Negative impact on the Group’s
– Close observation of any
effective tax rate
– Costly compliance requirements
intended or proposed changes
to tax rules, both in the UK
and in other key countries where
the Group operates
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Hikma Pharmaceuticals PLC Annual report 2009
41
Section Three
3
Delivering
responsibly
42
How we ensure that we act responsibly
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate responsibility report
Developing a long-term sustainable strategy
that addresses the social issues affecting society today
in a way that makes sense for our business
and reflects the core Hikma values
Overview from Mazen Darwazah, Vice-Chairman
2009 has been a rewarding and productive period
for our corporate responsibility (“CR”) programme.
Throughout the year, we have focused on developing
a long-term, sustainable strategy, which not only
addresses the very real social issues affecting society
today but does so in a way that makes sense for our
business and reflects the core Hikma values.
Since the Company was founded in 1978, we
have been committed to honesty, integrity and the
highest possible standards in everything we do.
We are dedicated to the welfare and education
of our employees, committed to the communities
in which we work and determined to preserve
and protect the environment in which we operate.
These principles have guided us for the past 30 years
and will continue to do so in the future.
To that end, we have designed a five-year plan
taking us from 2010 to 2015. The plan revolves
around two broad themes – wellbeing and education,
and four key platforms – our people, our community,
our environment and global welfare. These have been
chosen specifically because they combine our very
real commitment to stakeholders and society with a
desire to embed CR into the heart of our business.
Number of CR Champions
Champions work to deliver initiatives and engage
with employees to encourage and motivate.
10
2009 achievements
Corporate responsibility is and always has been an
essential part of the Hikma way. Strong commitments
to our community and the environment have helped
to make Hikma what it is today – a highly successful
international pharmaceutical company with a
reputation for integrity.
Over the last three years we have sought to
formalise our approach to CR to ensure that it is
increasingly embedded in the way we conduct
business. We began this process in 2006 by creating
a Group-wide CR programme and introducing an
official Hikma Code of Conduct. The following year,
we built on that progress and in 2008 established
a Board-level steering committee and an expanded
working committee.
In 2009, we increased the number of CR
Champions across the Group. The champions are
focused on raising awareness of social, health and
environmental issues in our business. In employee and
community matters, we gave particular emphasis to
four events: the Hikma Global Volunteering Day, ‘You
are Hikma’, Hikma’s Day against Breast Cancer and
Hikma’s Day against Diabetes. Volunteering is an
important part of Hikma’s CR approach and the
annual Global Volunteering Day focuses each year on
a different healthcare theme. We also spent time in
2009 developing and refining the five-year strategy
for CR, endorsed and supported by our executive
and non-executive Board members.
Aligning business and CR
We believe we owe a duty of care towards our
employees, our customers, our suppliers and the
wider community. Our commitment to operating
responsibly has and will continue to differentiate us
from our competitors. It has helped us to build our
strong brand and, ultimately, it will help us to drive
sales and to operate more efficiently.
43
Hikma responsibility structure
Board of
Directors
Steering
Committee
Working
Committee
CR
Champion
At the end of 2008, we undertook a significant
review of our CR governance structure in line with
our ongoing aim of embedding CR throughout the
Hikma Group and driving the CR programme from
the Board and senior management to operational
functions. This year was the first full year of operations
for the Board-level CR Steering Committee and
CR Working Committee.
The seniority and breadth of experience that the
members bring to these committees ensures that
CR remains focused and aligned to the business.
Facilitated by the Corporate Communications and
CR team, the Group is responsible for agreeing strategy,
endorsing activities, reviewing activity reports and
assessing progress. This approach provides coherence
and economies of scale as well as a framework
to share best practice across our markets.
On the ground, CR Champions work to implement
our strategy across the Group. At the end of 2009,
we had a team of ten CR Champions, each dedicated
to one of our manufacturing facilities. During the
course of 2010, we will build on this initiative,
adding two new Champions to the existing team.
These Champions work to deliver initiatives,
engage with and report to country managers and
encourage and motivate employees to make CR part
of their day-to-day operations. All our Champions are
full time employees with a range of experience and
expertise, which ensures that CR remains focused
on business benefit and is embedded in employees’
working lives.
Our Champions deliver monthly reports to the CR
department and their country managers. These
managers then report back to the Group on progress,
encouraging diligence and continuity. We are now
establishing KPIs for senior management to deepen
their support for CR in their respective markets.
Reporting
We have continued to use the Global Reporting
Initiative’s G3 guidelines as a benchmark tool. Building
on our work in previous years, we have focused in
particular on community investment, environmental
impacts, employees and labour practices.
Many of our subsidiaries began reporting against
GRI metrics for the first time in 2009, including Egypt,
Germany, Italy, Jordan’s APM facility and Saudi Arabia.
We have also started to use dedicated reporting software,
underlining our commitment to the GRI approach
and enhancing comparative reporting in the future.
People
We value our people as our most important asset.
To successfully grow our business, we need to develop
and reward our people.
With our commitment to maintaining the
highest quality standards and cGMP (current good
manufacturing practices), technical training has
always been a top priority across the Group. In 2008,
analysis of GRI data helped us to identify areas of
need for further training. On this basis, we targeted
an increase in non-technical training for 2009. In line
with these targets and in recognition of the important
role CR plays within the Group, a two-day training
workshop was held in 2009, focusing on developing
the champions’ knowledge and understanding of
CR and discussing future strategic aims. Of course,
we also maintained our Continuing Education
Scheme, which supports employees in full funded
further education programmes.
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate and social responsibility report continued
Health and safety
Health and safety lie at the core of our business.
We cannot operate successfully and deliver quality
products without ensuring the health and wellbeing
of our employees.
Communication of Hikma’s Health and Safety
Policy – to meet and, where possible, exceed all the
labour laws and regulations with regards to workplace
health and safety in all the countries in which we
operate – was prioritised during the year. We are
committed to continuous improvements in health and
safety and will be working towards the Group-wide
implementation of OHSAS ISO 18001, the occupational
health and safety management system, or its
equivalents in 2010.
Our Health and Safety Policy is becoming more
widely implemented across the Group. Developed in
2007 and launched in 2008, the policy involves the
appointment of an HSE supervisor in each business
unit. The appointment process continued during 2009.
Health and safety training was offered to all
employees across the Group in 2009. This was part
of a commitment made in 2008 and we are proud
to have achieved this goal. We have also made
significant progress on absenteeism and occupational
injury rates. Occupational injury rates were less than
1 per cent in 2009 and, in many countries, a zero
rating was achieved. We hope to make further
improvements in 2010, following the launch
of an explicit programme targeting zero level
occupational injuries.
Promoting the health and safety of our employees
is clearly aligned with our key business objectives –
to deliver better health to the markets we serve.
In 2009, our businesses focused on developing a
strong presence in the growing fields of heart disease,
Occupational injury rates
Occupational injury rates were less than
1% and in many countries zero.
<1%
diabetes and
cancer. Sponsoring
symposia and
conferences for
doctors, we have
helped to build
a strong knowledge
base in the
MENA region.
In 2009, two
important events
were organised
to raise awareness of
cancer and diabetes
among our employees
employees
employees
and our communities
and to promote
healthier lifestyles – Hikma’s Day against Breast
Cancer and Hikma’s Day against Diabetes.
The Day against Breast Cancer was a Group-wide
event with participation from all business units. Free
breast examination and mammograms were offered
to female employees in some business units. Other
initiatives included poster and brochure campaigns,
awareness e-mails, lectures on prevention and
fundraising in support of cancer research.
A similar approach was taken with our Day
against Diabetes. Awareness of the causes and risks
of diabetes was heightened through lectures and
poster campaigns at a number of Hikma business
units. In others, blood sugar analysis tests were offered
to employees and in the US, employees took part in
the American Heart Foundation’s Heart Walk campaign.
Ethics
Hikma is committed to the highest ethical principles
and we endeavour to ensure that all our employees
conform to the highest possible standards of integrity
and honesty.
We are members of the Global Compact, a
UN-sponsored initiative for businesses committed
to aligning their operations and strategies with ten
universally accepted principles in the areas of human
rights, labour, environment and anti-corruption.
Hikma remains committed to upholding these
principles and embedding them into its operations.
In 2009, further steps were taken to train existing
staff and all new joiners now receive guidance on
our commitment to the Global Compact as part of
45
This year, staff worldwide participated in a variety of
charitable activities, including donating blood, cleaning
hospitals, kindergartens and orphanages and spending
time with the children, and raising money for research.
Of course, we are active in our communities
throughout the year through a number of other
initiatives, including providing funding for students
in the fields of Technical Pharmacy and Applied
Medical Sciences. The time, interest and funding that
we provide to local students is a real indication of our
ongoing commitment to the communities in which
we work. Over the long term, these efforts should
also help to ensure that we can continue to attract
well-trained employees in each of the markets in
which we are operating.
Across the MENA region, Hikma volunteers also
supported poor local communities, providing financial
and practical assistance to those in need. In the
United States, fundraising was undertaken and
support was given to local homeless groups,
disadvantaged families and the elderly.
Hikma has also partnered with the Global Fund
to fight Aids, TB and Malaria. In 2009, the Company
and the Samih Darwazah Foundation donated the
seed money to establish the MENA Chapter of the
Global Fund. This is located in Amman Jordan, and
will operate across the Middle East and North Africa.
A board of directors has been selected, an executive
director has been hired and in 2010, the Chapter will
launch its first awareness and advocacy campaigns.
Across the Group, we continued through 2009
to give generously to local causes, donating medicines
to NGOs and communities in crisis. Our employees
also volunteered their time to many NGOs worldwide.
Charitable donations in 2009
$1.2m
Community
The number of participants more than doubled for the
Hikma Global Volunteering Day from 500 in 2008.
1,200
their induction programme. In November 2009, we
issued a Communication on Progress report
underlining our actions to date.
We now audit all our main suppliers with regard
to their employment practices. The practice was
initiated two years ago and we constantly seek
to improve communication with suppliers and
gain more feedback from them.
We are also making progress with our Code
of Conduct. In 2009, more than 65% of all
employees signed the code and it was incorporated
into the induction process for new employees.
In 2010 our Code of Conduct will be included
in performance appraisals.
In 2009, we also updated our “Equal Treatment
of Employees & Harassment” policy, which states that
we do not condone favouritism or inequality in any
shape or form.
In 2009, Hikma Pharmaceuticals was awarded
the Best Company in an Emerging Market Award at
the annual Scrip Awards. This award is testament to
the continued progress the Company is making to
be a leader in the MENA region across all areas of
its business including CR.
Community
Active and effective engagement with the community
is an essential part of our CR strategy.
The Hikma Global Volunteering Day, held in
April each year, aims to encourage employees across
the Group to invest time in their local communities.
The number of participants more than doubled this
year – from 500 in 2008 to 1,200 in 2009. Aligned
with our business objectives, the Volunteering Day
aims to support better health in our local communities.
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate and social responsibility report continued
Environment
Hikma, like every business, has an impact on the
environment, both locally and globally. We are
working towards limiting that impact by educating
our staff and encouraging them to think about their
effect on the environment in everything they do.
We are also actively exploring ways in which we
can reduce carbon emissions across the Group and
reduce waste, particularly harmful waste.
Hikma’s Environmental Policy five key pledges:
1.
to integrate our environmental policy across
the Group;
2.
to reduce our impact on climate change;
3.
4.
5.
to comply with environmental legislation and
regulation in every country in which we operate;
to strive for continuous improvement in our
environmental protection; and
to implement and develop ISO 14001 or its
equivalent at every production site across
the Company.
In 2008, we made good progress in this area,
obtaining the ISO 14001 certification at our AMC
facility and our Hikma Jordan facility. In 2009, both
facilities gained the continuity certificate. In 2010, we
are committed to continuing our work on ISO 14001
and exploring more international accreditations.
GRI data collection continued to heighten
awareness of energy usage in 2009 and helped
to identify ways to drive a reduction in energy
consumption across our business units. The collection
and analysis of data improved considerably in
2009 and we expect to report further progress
in 2010.
Energy consumption
Diesel consumption decreased in Algeria
-21%
In many units, real advances have been made in
energy and water consumption since 2008. In Algeria,
electricity consumption fell 11% year on year from
1.5 million KWh to 1.3 million KWh while diesel
consumption was 21% lower at 57,000 litres over the
same period. The business also intends to drive forward
a more aggressive recycling programme and incinerate
hazardous waste in a more effective manner.
Hikma Jordan and AMC reduced diesel
consumption by at least 10%, thanks to a concerted
effort to be more energy efficient.
Hikma Jordan’s water consumption fell dramatically,
from 44,674 cubic metres to 27,168 cubic metres,
Portugal reduced water consumption by 15% to
74,431 cubic metres and Saudi Arabia cut water
consumption by 16% to 47,430 cubic metres.
Across the Group, Company vehicles have been
upgraded to more environmentally efficient options.
In addition, there is an ongoing and regularly
reinforced awareness campaign, which stresses
Hikma’s desire to reduce its environmental impact
and stresses the part that each and every employee
can play in this endeavour. We will be reporting back
on our progress to all our stakeholders.
Following initial work in 2009, Hikma will be
assessing its carbon emissions in Jordan during 2010.
This analysis is based on the Carbon Disclosure Project
framework and will provide valuable insights across
the Group on how to measure our emissions and
take steps to reduce our emissions as a Group in the
coming years.
Moving forward – our five-year plan
We have designed a five-year plan taking us from 2010
to 2015. This revolves around two broad themes,
wellbeing and education. Wellbeing is intrinsically
linked to our role in the pharmaceutical industry and
our core duty of care to those around us. Education
is integral to the effective development of the
Company and the communities we serve.
These themes will be a reference point for our
CR efforts over the next five years and within this
framework, we have created four key areas of focus:
our people, our community, our environment and
global welfare, which reflects our awareness of the
need to enhance health and wellbeing wherever we
operate and wherever we do business. While we have
implicitly recognised these areas as being of crucial
importance in the past, explicit recognition will,
we believe, allow us to reinforce our efforts to
drive CR internally and on the world stage.
47
OUR PLATFORMS
Community
People
Environment
Ethics
Hikma does not exist in isolation.
It wishes to engage in its local
communities, recognising the
importance of establishing a
strong community footprint in
all countries of operation
Our people are our greatest asset.
They are ambassadors for the
Company and we aim to support
them as fully as possible, in terms
of training, welfare, recognition
and supporting diversity
Mitigating our environmental
impact should be offered as
standard by Hikma as a company.
We should promote a sustainable
presence in our communities
through recycling, waste reduction
and energy efficiency
Hikma should encourage all
counterparties to adopt the
policies and behaviours of
Hikma, and to support the
high levels of ethical business
practice undertaken by Hikma
Aim
Aim
Aim
Building our brand
Making us stronger
Efficient use of resources
Aim
Preferred partner
for business
ACTING RESPONSIBLY
– Partnership with the Jordan
River Foundation
– Global Volunteering Day
– Fundraising for local homeless
groups, disadvantaged families
and the elderly
WELLBEING
– Partnering with the
Global Fund to fight
AIDS, TB and Malaria
– Distribution of free medicines
– Local fundraising for research
and treatment of chronic
diseases
EDUCATION
– Professional and technical
training and development
– Transparent remuneration
structure with job grading and
levelling
– Compliance with health and
safety regulation
– “You are Hikma”
– Energy and water conservation,
recycling and waste management
– Solvency recovery pilot
– Member of UN Global Compact
– Member of PACI
– Audit of main suppliers’
employment practices
– Hikma’s Day against
Breast Cancer
– Hikma’s Day against Diabetes
– Free breast exams and
mammograms for all employees
– Local clean water initiatives
– Focus on hazardous
waste reduction
– Stakeholder engagement
– Adherence to highest
quality standards across our
global business
– Funding students in the fields of
Technical Pharmacy and Applied
Medical Sciences
– Educational bursaries
– Community open days at Hikma
– Internships and work experience
– Staff education seminars
– Awareness sessions on key
diseases
– Health and safety training for
all employees
– Environmental awareness
lectures
– Awareness campaigns
– Staff training
– Staff training on Global
Compact principles
– Incorporating Code of Conduct
in induction training
GRI REPORTING
– EC1 – Direct economic value
generated (including revenues,
costs, donations, investments)
– EC8 – Development and impact
of infrastructure investments
for public benefit
– LA7 – Rates of injury, disease,
lost days, absenteeism
– LA10 – Average hours of training
per employee per category
– SO3 – Percentage of employees
trained in anti-corruption
policies
– EN3 – Direct energy
consumption
– EN8 – Total water withdrawal
– EN22 – Total weight of waste
– PR1 – Life cycle stages in which
H&S impact of products are
measured for improvements
– HR2 – Percentage of suppliers/
contractors undergone human
rights screening
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Hikma Pharmaceuticals PLC Annual report 2009
49
Section Four
4
Governance and
financial results
50
Board of Directors
52
Senior management
54
Corporate Governance report
60
Directors’ report
63
Remuneration Committee report
75
Directors’ Responsibility Statement
76
Independent auditors’ report
77
Consolidated financial statements
82
Notes to the consolidated financial statements
122
Company financial statements
125
Notes to the Company financial statements
129
Shareholder information
131
Principal Group Companies
132
Advisers
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Hikma Pharmaceuticals PLC Annual report 2009
Board of Directors
Samih Darwazah
Non-Executive Chairman, 79
Mazen Darwazah •
Executive Vice-Chairman, CEO of MENA, 51
Samih Darwazah, remained as Chairman of the Company following
his resignation as Chief Executive Officer in July 2007.
Prior to forming Hikma Pharmaceuticals Ltd in 1978 Mr Darwazah
held various managerial positions with Eli Lilly. Between 1995 and
1996 he served as Minister of Energy and Mineral Resources in Jordan
and was a member of the Advisory Economic Council to His Majesty
the King of Jordan. He also founded the Jordan Trade Association.
Samih is a qualified pharmacist and holds a masters degree from
the St. Louis College of Pharmacy, Missouri. He is also Chairman of
Labatec – Pharma SA.
Mazen Darwazah was appointed Executive Vice-Chairman in 2005.
Since joining Hikma in 1985 he has held various positions within the
Group, including Chairman and CEO of Hikma Pharmaceuticals Limited
(Jordan). As CEO of the MENA business Mazen is responsible for the
strategic development of the business in this region.
Mazen is also a director of the Jordan International Insurance
Company and holds a number of non executive directorships of various
non-governmental and educational organisations. He has previously
served as the President of the Jordanian Association of Manufacturers
of Pharmaceuticals and Medical Appliances. Mazen holds a B.A. in
Business Administration from Beirut University, Lebanon.
Said Darwazah
Chief Executive Officer, 52
Ali Al-Husry
Non-Executive Director, 51
Said was appointed Chief Executive Officer in July 2007. He joined Hikma
in 1981, and was Chairman and CEO of the Group holding company
from 1994–2003.
Said played a key role in the development of the Group strategy
during his tenure, including the acquisition of West-ward Pharmaceuticals
in the USA and the development of the Injectables business in Europe
and the MENA region. During this period the Company’s facilities in the
USA, Jordan, and Portugal, received FDA approval. Said was Minister
of Health for the Hashemite Kingdom of Jordan from 2003–2006.
He is currently a member of the board of Central Bank of Jordan and
Chairman of the Dead Sea Touristic and Real Estate Investments and the
Health Care Accreditation Council of Jordan. He has a degree in Industrial
Engineering from Purdue University (USA) and an M.B.A. from INSEAD.
Ali Al-Husry was appointed as a Non-Executive Director in 2005. He
joined Hikma as Director of Hikma Pharma Limited in 1991 and has held
various directorships within the Group. For these reasons Ali is not
considered an independent director.
In 1995 he was a founder of The Capital Bank of Jordan and was
Chief Executive Officer until 2007 where he continues to be a director.
He is Chairman of Endeavour Jordan, a director of the Microfund for
Women and a member of the Board of Trustees of the Jordan Museum.
He brings great financial experience to the Board as well as an in-depth
knowledge of the MENA region and Hikma Pharmaceuticals. Ali has a
degree in Mechanical Engineering from the University of Southern
California and an M.B.A. from INSEAD.
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Micheal Ashton *†•
Independent Non-Executive Director, 64
Sir David Rowe-Ham *†•
Senior Independent Non-Executive Director, 74
Michael Ashton was appointed to the Board in October 2005 and is
Chairman of the Remuneration Committee.
Michael has over 30 years experience in the pharmaceutical
industry, having previously held positions with Pfizer, Inc. and Merck, Inc.
He was formerly Chairman, President and Chief Executive of Faulding, Inc
and Chief Executive of Skyepharma PLC. He is also a non-executive
director at Transition Therapeutics, Proximagen Neuroscience plc
and Phosphagenics Limited.
Sir David Rowe-Ham was appointed to the Board in October 2005
and holds the position of Chairman of the Nomination Committee.
Sir David brings to Hikma a wide experience in financial matters,
corporate governance, public affairs and the development of listed
companies. He is also Chairman of Arden Partners plc and Olayan
Europe Ltd.
Breffni Byrne *†
Independent Non-Executive Director, 64
Dr. Ronald Goode *†
Independent Non-Executive Director, 66
Breffni Byrne was appointed to the Board in October 2005 and is
Chairman of the Audit Committee.
As a chartered accountant with over 30 years of experience in
public practice, including significant international responsibilities, he has
extensive experience in financial reporting, international operations,
corporate governance and general financial and commercial matters.
Breffni is Chairman of NCB Stockbrokers, a non-executive director of
Irish Life and Permanent plc, Cpl Resources plc, Coillte Teoranta (the Irish
state forestry company) and other companies.
Ronald Goode was appointed to the Board in December 2006.
Ron has spent over 30 years in the international pharmaceutical
industry, including senior positions with Pfizer and Searle.
He is currently the Chairman of The Goode Group, advisers to
the pharmaceutical industry, on the Advisory Board of ART Recherches
et Technologies Avancees Inc. (a TSX-listed company), a director of
Mercy Ships International and a trustee of Thunderbird School of
Global Management. He was formerly President and Chief Executive
Officer of Unimed Pharmaceuticals, Inc. and eXegenics Inc.
Board Committee membership key
* Audit Committee
† Remuneration Committee
• Nomination Committee
52
Hikma Pharmaceuticals PLC Annual report 2009
Senior management
Bassam Kanaan
Executive Vice President
and Chief Financial Officer
Taghreed Al-Shunnar
Executive Vice President
Strategic Business Development
Majda Labadi
Corporate Vice President
Human Resources
Bassam joined Hikma in 2001, playing a
leading role in the IPO in 2005. He qualified as
a chartered accountant in 1989 with Deloitte
& Touche (USA) where he held a variety of
roles prior to joining PADICO in 1994 as CFO.
In February 2009, Bassam assumed responsibility
for Operations, Manufacturing and Supply
Chain management in Europe and MENA.
He currently holds non-executive directorships
in Zara Holding, Aqaba Development Co.
and Capital Bank in Jordan. Bassam has an
Executive M.B.A. from Northwestern University
and a B.A. from Claremont McKenna
College (USA).
Taghreed joined the Company in 1988
where she has held a variety of roles including
Marketing Planning Director and General
Manager of Hikma Pharmaceuticals Limited.
In 2005, Taghreed became Corporate Vice
President of Branded Pharmaceuticals
MENA. In February 2009, Taghreed assumed
responsibility for Sales and Marketing, R&D
and Business Development MENA and EU.
In March 2010 Taghreed was appointed to
a new role in charge of Strategic Business
Development for the Group. Taghreed has
a degree in Pharmacy from the University
of Jordan and completed her Executive
M.B.A. (INSEAD) in December 2007.
Majda joined the Company in 1985 and has
held a variety of roles including Purchasing
Manager at Hikma Pharmaceuticals Limited,
Strategy Manager at Hikma Investment,
General Manager of Hikma Faramceutica and
in 2007 she was appointed Vice President of
Injectables. In February 2009 Majda returned
to Jordan and assumed her current position as
VP of Corporate HR. She has been responsible
for establishing a central HR function and
implementing a number of group wide HR
initiatives including a group wide compensation
structure and performance evaluation process
and the development of Group HR policies
and procedures. Majda holds a masters degree
in Health Economics and a B.A. from the
American University of Beirut. She is currently
enrolled in the DBA program at Instituto
De Impressa – Madrid.
Henry Knowles
General Counsel and
Company Secretary
Susan Ringdal
Investor Relations
Director
Henry joined the Company in September
2005. Before joining Hikma, he worked for
the international law firm, Ashurst, where
he specialised in corporate law. Since joining
Hikma, Henry has advised on all aspects of
the Group’s business, including commercial
negotiations, supervising corporate governance
and compliance and contributing to the
execution of the Group’s acquisition strategy.
Henry is admitted as a solicitor in England
and Wales and holds an M.A. in Social and
Political Science from Cambridge University.
Susan joined the Company in November 2005,
having previously worked for the pharmaceutical
distribution and retail pharmacy group Alliance
UniChem plc as Investor Relations Manager.
She also has experience as an equity analyst at
Morgan Stanley in London. Susan holds a B.A.
in History from Cornell University and an M.B.A
from London Business School.
53
Dr Ibrahim Jalal
Senior Corporate Vice
President Technical Affairs
Fadi Nassar
Corporate Vice President
Active Pharmaceutical
Ingredients (API)
Ibrahim joined Hikma in June 1979 as
Technical Director and has held a variety of
roles including Corporate Technical Vice
President for Compliance and Senior Corporate
Vice President for R&D. He has played a
leading role in Hikma securing FDA approval
for its manufacturing units. Ibrahim holds
a PhD in Pharmacy from the University of
Wisconsin/Madison (USA).
Fadi joined Hikma in 1988 and has worked
in various roles within the Group including
Operations, Purchasing and Business
Development. He was promoted to Corporate
Vice President, API in 2007. Fadi holds a
bachelors degree in Chemical Engineering
from Newcastle University and a masters
degree in Chemical Engineering from
Leeds University. Fadi is also a graduate of
INSEAD’s International Executive Program.
Michael Raya
Corporate Vice President
and CEO West-Ward
Michael joined the Company in 1992 from
Vitarine Pharmaceuticals where he worked
from 1984 until 1992 in various roles, including
Vice President, Quality Control. Prior to this,
Michael worked at Schering-Plough and
Hoffman LaRoche. Michael joined Hikma in
1992 and was appointed CEO of West-Ward
in 2009, where he has been instrumental
in the turnaround of the company and
the globalisation of the product portfolio.
Michael holds a masters degree in Industrial
Pharmacy from Long Island University
and a bachelor’s degree in Chemistry from
St. Francis College. Michael is also a graduate
of INSEAD’s International Executive Program.
Ragheb Al-Shakhshir
Corporate Vice President
Research and Development
Khalid Nabilsi
Corporate Vice President
for Finance
Ragheb joined Hikma in 2000 as a Research &
Development Manager. Prior to joining Hikma
he held a variety of roles as Senior Scientist at
Novartis Pharmaceuticals, and at Alcon Labs.
From 2003-2008 Ragheb led the Hikma R&D
Injectable team and from February 2009
assumed the responsibility of Vice President for
Research and Development. Ragheb has a PhD
in Industrial and Physical Pharmacy from Purdue
University and a B.A. in Chemical Engineering
from the University of Wisconsin-Madison.
Khalid joined Hikma in 2001 and was a member
of the IPO team in 2005. Prior to assuming his
current role Khalid held several senior positions
in the Finance department including Group
Financial Controller. Following qualification
as a CPA he held a variety of roles in financial
accounting, reporting and financial advisory
services, most recently with Atlas Investment
Group where he was involved in merger and
acquisition advisory services. Prior to Atlas,
Khalid has managed several multinational audit
engagements at Arthur Andersen in Amman,
Jordan. Khalid has an M.B.A. from the
University of Hull in the UK.
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate Governance report
Combined code
The Board is responsible for, and committed to, meeting the standards of
good corporate governance set out in the Combined Code on Corporate
Governance published by the Financial Reporting Council in June 2008
(the “Combined Code”) and the corporate governance principles
set out in the Markets Law of the Dubai Financial Services Authority
(the “Markets Law”) (together the “Corporate Governance Principles”).
This report, the Audit Committee report set out on pages 57 to 59 and
the Remuneration Committee Report set out on pages 63 to 74 describe
how the Board applied the Corporate Governance Principles during the
year under review.
The Listing Rules of the Financial Services Authority and the Markets
Law require the Group to report on their application of the principles of
good governance and the extent of their compliance with the Corporate
Governance Principles. This statement provides details on how the Group
has applied these principles.
During the year under review, the Company applied the principles
set out in Section 1 of the Combined Code, including both the main
principles and the supporting principles, and the Corporate Governance
Principles. At the year end the Company was in full compliance with
the Corporate Governance Principles.
The Board
The Group is led and controlled by the Board of Directors.
The Board is responsible for setting the strategic direction and
monitoring the financial performance of the Group against its targets.
The Board also promotes good corporate governance within the Group,
and ensures that the Group meets its responsibilities to shareholders,
employees, suppliers, customers and other stakeholders. There is a
formal schedule of matters reserved to the Board for consideration
and decision, which is reviewed and, if necessary updated, annually.
This includes approval of strategic plans, approval of financial statements
and the annual Group budget, approval of material investment decisions,
acquisitions and divestments, and review of the effectiveness of the
Group’s systems of internal control.
The Board delegates its powers to the CEO who is responsible for
delivering the company’s strategic objectives and is assisted in this task
by the executive management team.
The senior management team who report directly to the CEO
meet with him to discuss strategy and key objectives for their areas of
responsibility. The CEO reports on operational progress in these areas to
the Board and the key senior management team present to the Board, as
appropriate, to highlight and debate developments in their business.
Composition of the Board
The Board comprises eight members, half of whom are independent: a
Non-Executive Chairman, five Non-Executive Directors, one of whom is
not classified as independent for the purposes of the Combined Code
and two Executive Directors. The Board considers the independence of
the Non-Executive Directors on an annual basis during the corporate
governance review that takes place in December each year.
The names of the Directors and their biographical details are set out on
pages 50 and 51. The Chairman and the Executive Vice-Chairman were
appointed to the Board on the incorporation of the Company on
8 September 2005. The Chief Executive Officer was appointed to the
Board on 1 July 2007, and save for Ronald Goode, who joined the
Board on 12 December 2006, each of the Non-Executive Directors
joined the Board on 14 October 2005. The Non-Executive Directors have
diverse business backgrounds, skills and experience and as such bring
independent judgement to bear on issues of strategy, performance,
resources, key appointments, standards of conduct and other matters
presented to the Board. In 2010, Ronald Goode offers himself for
re-election at the Annual General Meeting.
The roles of the Chairman and Chief Executive Officer are separate,
and the Board has approved a statement of their responsibilities in
writing. These guidelines are reviewed annually by the Board. Prior to
the appointment of the current Chief Executive Officer the Board
undertook consultation with its major shareholders and external advisers
regarding the continuation of Samih Darwazah in his role as Chairman.
The Board concluded that his former executive role should not prevent
him from remaining as Chairman, especially as he has an in-depth
understanding of the Group and the business and is able to provide a
valuable contribution in his capacity as Non-Executive Chairman.
The Board does not classify Ali Al-Husry as an independent Director
for the purposes of the Combined Code as a result of his involvement
with Darhold Limited, the Company’s largest shareholder. He was also a
Director of Hikma Pharmaceuticals Limited prior to the Company’s listing.
However, he continues to bring broad financial experience to the Board
as well as a detailed knowledge of the MENA region which is significant
to the Group’s business.
The Senior Independent Director is Sir David Rowe-Ham who remains
available to shareholders should they have concerns that they do not
wish to raise with the Chairman. Sir David is also Chairman of the
Nomination Committee and is responsible for chairing the meetings
of Non-Executive Directors conducted without the presence of the
Chairman or executive management.
The Board continues to discuss its composition and the skills and
business experience of its members. All of the directors believe in the
necessity for challenge and debate in the boardroom and consider that
the Board relationships encourage honest and open debate with the
Executive Directors. Furthermore the Non-Executive Directors maintain
strong relationships outside the timetabled board meetings with
senior executive management and visit company subsidiaries regularly.
They believe that the Board’s decision making process is inclusive,
and is not dominated by any individual or group of individuals.
Information flow
Board and committee papers are circulated to members in advance
of the meetings. In addition to formal meetings, the Chairman and
Non-Executive Directors maintain regular contact with each other
and executive management outside the formal Board timetable.
The Chairman also holds informal meetings with Non-Executive
Directors without the executive management present to discuss issues
affecting the Group. Senior executives attend Board meetings and make
presentations on the results and strategies of their business units.
55
This year the Board received presentations from all members of the
senior management team on their areas of responsibility. Strategic
presentations were received on human resources, sales, compliance,
supply chain management, finance and operations. Each of the senior
executives has been scheduled to update the Board on their initiatives
during the course of 2010.
All Directors have access to the advice and services of the Company
Secretary, who is responsible for ensuring that good board procedures are
followed and for advising the Board through the Chairman on all matters
of corporate governance. The appointment and removal of the Company
Secretary is a matter reserved for the Board. To the extent necessary, the
Directors are able to obtain independent professional advice at the
Company’s expense in the performance of their duties as directors.
Board Training/Continuing Professional Development
The Directors maintain a close dialogue between Board meetings,
ensuring that, amongst other things, the Non-Executive Directors are
kept up to date with major developments in the Group’s business.
The Board is also encouraged to visit the major business units and
to meet the senior management teams in order to facilitate a better
understanding of the key issues facing the business. In the year under
review, the July Board meeting was held at the Group’s facilities in
Portugal where the Board had access to the senior management team
and reviewed the construction and progress of the new lyophilisation
plant. The Company’s brokers and financial advisers presented industry
and market updates to the board four times in 2009. These sessions are
in addition to the written briefings on areas of regulatory and legislative
change presented at each Board meeting in the form of the Corporate
Governance Paper. This year briefings took place on the Companies
Act 2006, the Walker Review, the FRC Review of Combined Code,
Listing Rules Review and the Bribery Bill. The Non-Executive Directors
have attended a number of training sessions specifically aimed at
Non-Executive Directors addressing the Walker Review and other
corporate governance topics.
Board meetings
Meeting record
Meetings held
Samih Darwazah
Said Darwazah
Mazen Darwazah
Ali Al-Husry
Michael Ashton
Breffni Byrne
Sir David Rowe-Ham
Ronald Goode
Board
Audit
Remuneration
Nomination
9
9
9
9
8*
9
9
9
9
8
–
–
–
–
8
8
8
8
6
–
–
–
–
6
6
6
6
2
–
–
2
–
2
–
2
–
*Ali Al-Husry missed one Board meeting due to other commitments.
Board meetings
During the year under review the Board held eight scheduled meetings
and one unscheduled meeting. The Company Secretary attended all
Board Meetings and Committee Meetings. A table showing attendance
at these meetings is set out below. To the extent directors are unable to
attend additional meetings called on short notice, or are prevented from
doing so by prior commitments, they receive and read the papers for
consideration at that meeting, relay their comments in advance and,
where necessary, follow up with the Chairman on the decisions taken.
Board performance evaluation
The Non-Executive Directors, other than Ronald Goode, were re-elected
on 14 May 2009, having first been elected by shareholders on 25 May
2006. Said Darwazah was appointed on 1 July 2007 and elected by
shareholders on 15 May 2008. Ronald Goode who was appointed on
12 December 2006 will be seeking re-election by shareholders at the
AGM on 13 May 2010. He was first elected by shareholders at the AGM
on 6 June 2007. All Directors are subject to re-election at intervals of
no more than three years. Non-Executive Directors are appointed for an
initial term of three years, which can be renewed and extended for not
more than two further three-year terms.
As required by the Combined Code, a formal evaluation of the
performance of the Board, the Chairman, the Committee Chairmen
and the individual Non-Executive Directors was undertaken during the
period under review.
During 2009 the Board reviewed its approach to Board evaluations
and approved a three year evaluation process, which includes seeking
external consultation every third year. In 2009 the Board evaluation
was managed internally by the Senior Independent Director. In 2010
the Board will continue to review its performance internally with
the assistance of a consultant and in 2011 it will seek an externally
moderated evaluation.
This year the Board refreshed its approach to the appraisal process
using a new format of questions specifically targeted on the quality
of decision making and information made available to the Board.
As in previous years the evaluation process was led by the Senior
Independent Director, who met with each of the Directors and the
Committee Chairmen to undertake an appraisal of the performance
of the Board, its Committees and each of the individual Directors.
The results of the evaluation process and feedback were reviewed
with the Chairman and formed part of his appraisal of the overall
effectiveness of the Board and its members. Overall the review concluded
that the Board functions well, with good communication, and with
issues raised in good time to allow for consultation, debate and
effective decision-making. Recommendations were made regarding
the enhancement of some of the information provided to the Board
and amendments to the Board timetable and these are being
implemented in 2010.
In addition to the matters set out above in respect of all Directors,
the Senior Independent Director met with the Non-Executive Directors
to undertake a formal appraisal of the performance of the Chairman.
This review addressed the effectiveness of his leadership, the setting
of the Board agenda, communication with shareholders, internal
communication and Board efficiency. The Non-Executives concluded
that the Chairman gave clear leadership and direction to the Board,
and where necessary implemented changes and managed the agenda
to reflect the changing business environment in 2009.
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate Governance report continued
Directors’ service arrangements and terms of appointment
Details of the Executive Directors’ service arrangements and
Non-Executive Directors’ letters of appointment are contained in
the Remuneration Committee Report on pages 64 to 70.
Directors’ remuneration
Details of the remuneration of the Executive and Non-Executive Directors
are contained in the Remuneration Committee Report set out on pages
64 to 70.
Board committees
In accordance with the principles of good corporate governance and in
compliance with the Combined Code and the Markets Law, the Board
maintains three committees - the Audit Committee, Nomination
Committee and Remuneration Committee.
Each of the three Combined Code committees has terms of
reference, which were reviewed during the year. Copies are published
on the Company’s website at www.hikma.com. The Chairman give
regular reports of the Committees’ business to the Board.
Other Committees
The Group also has an Ethics Committee and a Corporate Social
Responsibility Committee, which draw their members from the Board
and senior management of the Group.
Nomination Committee
The Nomination Committee consists of two independent Non-Executive
Directors – Sir David Rowe-Ham (Committee Chairman) and Michael
Ashton – and the Executive Vice Chairman, Mazen Darwazah.
As required by the Corporate Governance Principles, the majority
of the members of the Committee are independent Non-Executive
Directors and an independent Non-Executive Director holds the
Chairmanship of the Committee.
The Nomination Committee is responsible for succession planning
and for ensuring that all appointments to the Board are made on
objective criteria. In accordance with its terms of reference, the
Committee is required to take into account the skills, knowledge
and experience of the Board in making its decisions and is able to use
external search firms or open advertising to compile shortlists of
candidates for the Board. It is also charged with reviewing the
appropriateness of the size, structure and composition of the Board.
The Nomination Committee met twice during the year, with full
attendance. It met to discuss and review succession planning and to
discuss the performance evaluation and appraisal system for the Board.
Remuneration Committee
The Remuneration Committee consists of the Company’s four
independent Non-Executive Directors – Michael Ashton (Committee
Chairman), Breffni Byrne, Sir David Rowe-Ham and Ronald Goode.
The Remuneration Committee therefore complies with the membership
requirements laid out in the Corporate Governance Principles.
The Committee met six times during the year with full attendance.
The Committee is responsible for setting and reviewing executive
remuneration and that of the Company Secretary and is able to take
advice from external consultants when required. A full report on the role
of the Remuneration Committee is set out in the Remuneration
Committee Report on page 63. During the year under review, there has
been close co-operation between the new corporate Head of HR and the
Chairman of the Remuneration Committee to ensure that executive
remuneration policies and structure are appropriate and adequately
reflect the remuneration structures and policies in place for the Group’s
employees as a whole.
Audit Committee
The Audit Committee consists of four independent Non-Executive
Directors – Breffni Byrne (Committee Chairman), Michael Ashton,
Sir David Rowe-Ham and Ronald Goode. The Audit Committee therefore
complies with the membership requirements laid out in the Corporate
Governance Principles.
The Committee met eight times during the year with full attendance.
A full report of the role of the Audit Committee and details of how
it carried out its duties is set out in the Audit Committee report on
pages 57 to 59.
Ethics Committee
The Ethics Committee is chaired by Ronald Goode and draws its
members from the Board and senior management across the Group.
The Ethics Committee meets on an ad hoc basis to respond to issues as
they arise across all areas of the Group’s business. Thus, the Committee
is responsible for the oversight of all of statements and policies on ethics,
conduct, values and principles within the Group.
CR Steering Committee
The CR Steering Committee is chaired by the Executive Vice-Chairman,
Mazen Darwazah and draws its members from the Board (Ronald Goode)
and senior management. The CR Steering Committee is responsible for
reviewing the strategy and direction of the Group’s social, community
and environmental programme. The Committee is also responsible
for the oversight of the CR Working Committee to undertake the
implementation of the Group’s CR programme.
Internal Control
The Board has overall responsibility for the Group’s systems of internal
control and risk management and has complied with the requirements
of the Corporate Governance Principles in establishing a continuous
process for identifying, evaluating and managing the risks the Group
faces. The Board is responsible for monitoring the effectiveness of these
systems on an ongoing basis and, at least annually, conducting a formal
review of the Group’s policies on internal control. The system of internal
control provides reasonable but not absolute assurance against material
misstatement or loss.
57
The key elements are as follows:
a reporting structure with clear procedures, authorisation limits,
segregation of duties and delegated authorities;
annual budgets and updated forecasting for the Group that identify
risks and opportunities which are reviewed and approved by the Board;
a comprehensive system of internal financial reporting which includes
regular comparison of financial results and key performance indicators
against budget and forecast, informed by management commentary;
a clearly defined process for controlling capital expenditure and other
financial commitments, including appropriate authorisation levels, which
are monitored and approved by the Board as appropriate;
written policies and procedures for all material functional areas with
specific responsibility allocated to individual managers.
During the year under review, Ernst & Young continued its management
and execution of the Group’s internal audit function on a global basis
under a three year contract which commenced in 2009. This involves
a risk-driven approach to internal audit which is overseen by the Audit
Committee. The internal audit process focuses on reviewing areas of
business risk, internal controls, financial reporting and other systems in
the Company’s main subsidiaries and at the corporate level, with regular
reports of its findings made to the Audit Committee. Ernst & Young have
direct access to the Audit Committee and the Board Chairman.
The Board confirms that, in accordance with the requirements of
the Corporate Governance Principles, a review of the effectiveness of
the Group’s systems of internal controls was conducted during the year
under review.
Whistleblowing
The Group Whistleblowing Policy contains arrangements for the
Chairman of the Audit Committee, the Senior Independent Director,
and Ronald Goode (as a US-based member of the Audit Committee)
to receive, in confidence, complaints on accounting, risk issues,
internal control and other instances of allegedly improper behaviour
by Group employees.
Insurance
The Company maintains an appropriate level of Directors’ and Officers’
insurance in respect of action taken against Directors.
Audit Committee report
The Combined Code requires that this Annual Report separately describes
the work of the Audit Committee and how it discharges its responsibilities.
Terms of reference
The Audit Committee terms of reference include all matters indicated
by the Corporate Governance Principles and clearly set out its authority
and duties. These can be found on the Company’s website at
www.hikma.com and are summarised as follows:
monitor the integrity of the financial statements and any other formal
announcement relating to the Group’s financial performance and review
summary financial statements and interim management statements;
review and challenge accounting policies and accounting for significant
or unusual transactions;
review and challenge the adoption of accounting standards, estimates
and judgements and the clarity of disclosure in financial reports;
review and challenge compliance with stock exchange, UK Listing
Authority and legal requirements including the requirements of the
Combined Code and Markets Law;
review arrangements for employees to raise concerns, in confidence,
about possible wrongdoing in financial reporting or other matters;
monitor and review the internal financial controls and the Group’s
overall risk identification and management systems;
consider and approve the remit and effectiveness of the internal audit
function, its annual plan, its resources and access to information and
its freedom from management or other restrictions;
review and monitor management’s responsiveness to the findings and
recommendations of the internal auditors;
consider and make recommendations for appointment, re-appointment
and removal of the Company’s external auditor, and oversee the
relationship with the external auditor;
review and monitor the quality, independence and objectivity
of the external auditor (accounting for relevant UK and professional
regulatory requirements) and approve their remuneration and terms
of engagement;
develop and implement a policy on the supply by the external auditor
of non-audit services, taking into account relevant ethical guidance
and potential conflicts of interest.
The Audit Committee’s terms of reference were reviewed by the Audit
Committee during the period under review and were subsequently
reviewed and approved by the Board.
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Hikma Pharmaceuticals PLC Annual report 2009
Corporate Governance report continued
Composition
Hikma’s Audit Committee comprises four members – Breffni Byrne,
Michael Ashton, Sir David Rowe-Ham, and Ronald Goode – all of
whom are independent Non-Executive Directors, and whose biographical
details are set out on page 51. The Committee is chaired by Breffni Byrne,
who is a chartered accountant and who is considered by the
Board to have recent and relevant financial experience. No members
of the Committee have links with the Company’s external auditors.
The Company therefore considers that it complies with the Corporate
Governance Principles regarding the composition of the Audit
Committee. The Committee Chairman receives additional remuneration
to compensate him for his additional responsibilities.
Responsibilities
The Audit Committee assists the Board in discharging its responsibilities
with regard to financial reporting, external and internal audit and internal
control. This includes reviewing the Company’s annual report and
financial statements, interim report, Interim Management Statements
and trading updates, reviewing and monitoring the extent of non-audit
work undertaken by external auditors, and monitoring the effectiveness
and output of the Company’s internal audit activities, internal controls
and risk management systems. The Audit Committee is also responsible
for making recommendations to the Board on the appointment,
re-appointment and removal of the external auditors, as well as the
effectiveness of the audit process. The ultimate responsibility for
reviewing and approving the annual report and financial statements
and the half-yearly reports remains with the Board. The Board has also
delegated responsibility for the operation of the Company’s policies on
monitoring directors’ conflicts of interest to the Audit Committee and
thus has been included in the Audit Committee’s terms of reference.
Meetings
The Audit Committee met eight times during the year under review, with
the Chief Financial Officer and the Company Secretary in attendance.
The Audit Committee reviewed the 2008 annual report & financial
statements, the 2009 interim report, the two Interim Management
Statements released by the Company and each of the regulatory
statements made by the Company in respect of trading and results issued
during the year. The Committee also reviewed and approved the audit
plans for 2010 for both internal and external auditors and the related
scope of internal audit work to be undertaken. The Committee reviewed
the effectiveness of the Group’s internal controls and risk management
processes and the disclosures made in the annual report & financial
statements on these matters and reported on these to the Board.
The Committee also reviewed its own terms of reference and general
effectiveness, both specifically and in the context of the overall annual
review of corporate governance matters conducted by the Company.
The Group’s external auditors, Deloitte LLP, attended four Audit
Committee meetings for the purposes of presenting their 2008 audit
results and findings, the results of the 2009 interim review and their audit
plan for 2010. The internal auditors, Ernst & Young presented the results
of their audit programme for 2009 to the Audit Committee together
with their proposed audit plan for 2010. The Audit Committee continues
to review the response by management, proposed action plans and
the overall effectiveness of the internal audit function. In accordance
with the Combined Code, the Audit Committee also met with the
Group’s external auditor and internal auditor without executive
management present.
In addition, during 2009, the Audit Committee Chairman met
with external auditors in the USA and Portugal. The Audit Committee
Chairman also met with Ernst & Young in Jordan to discuss the results
of the 2009 internal audit programme.
Attendance of members at Audit Committee meetings is shown
on page 55 of the Corporate Governance report.
External auditors
The Audit Committee is responsible for the development, implementation
and monitoring of the Group’s policy on external audit. Oversight and
responsibility for monitoring the independence and objectivity of the
external auditors lies with the Audit Committee, and day-to-day
responsibility with the Chief Financial Officer. The Audit Committee is
also the point of primary contact for contact with the Board. The Group
has adopted a policy in relation to the provision of non-audit services
by the external auditors. The policy also sets out the categories of
non-audit services which the external auditors will and will not be
allowed to provide to the Group.
In line with audit independence requirements the external auditor
does not provide services such as information system design and
valuation or advocacy work which could be considered to be inconsistent
with the audit role. In addition, audit-related and non-related services
provided by the external auditor in excess of certain monetary limits
require prior approval by the Audit Committee. The Committee has
reviewed the non-audit services provided by the external auditor and
is satisfied that the nature of these services has not compromised
the auditor’s independence.
Fees paid in respect of audit, audit-related and non-audit services
are outlined in Note 6 to the Consolidated Financial Statements.
Audit-related services are services carried out by the external auditor by
virtue of its role as auditor and principally include assurance-related work
and accounting advice.
A policy has also been adopted whereby prior approval by the Audit
Committee is required before the recruitment of a senior member of the
audit team or the recruitment of an employee of the external auditors to
a senior finance position within the Group.
It is also the Committee’s policy to consider every year whether there
should be an audit tender process and whether using auditors from one
audit network continues to enhance the quality of the audit.
59
The Senior Independent Director and Chairman met with institutional
investor protection committees who requested meetings during the year
to discuss Corporate Governance matters, the business as a whole and
its management.
The principal ongoing communication with shareholders is through
the publication of the Company’s Annual Report and Financial Statements,
Interim Results and Interim Management Statements, together with
the opportunity to question the Board and Committees at the Annual
General Meeting. Shareholders are encouraged to attend the AGM
and if unable to do so are encouraged to vote by proxy. Copies of
presentations made at the AGM are available on the website after the
event together with the results of the voting. The full Board is present
at the AGM. The Company maintains a website (www.hikma.com)
containing financial and other information which is updated regularly.
Additionally, the Company presents a balanced view of the Group’s
performance and prospects through the release of appropriate press
announcements and other updates.
The Board is kept updated on the views of shareholders and the
market in general through the feedback from the investor meeting
programme and results presentations. Analysts’ reports are circulated to
the Board members together with monthly Investor Relations reports.
The Investor Relations Director also presents to the Board to provide
feedback from institutional investors.
Procedures to deal with conflict of interests
The Company has implemented procedures to deal with directors’
conflicts of interest or potential conflicts of interest. Responsibility has
been delegated to the Audit Committee to operate, monitor and review
the procedures, which have operated effectively during the year.
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To fulfil its responsibility regarding the independence of the external
auditors, the Audit Committee reviewed:
the external auditors’ plan for the current year, noting the role of the
senior statutory audit partner, who signs the audit report and who, in
accordance with professional rules, has not held office for more than
five years, and any changes in the key audit staff;
the arrangements for day-to-day management of the audit relationship;
the overall extent of non-audit services provided by the external
auditors; and
the past service of the auditors who were first appointed in for the
year ending 2004.
The Committee has considered the likelihood of a withdrawal of the
auditor from the market and noted that there are no contractual
obligations to restrict the choice of external auditors.
To assess the effectiveness of the external auditors, the Audit Committee
reviewed:
the arrangements for ensuring the external auditors’ independence
and objectivity;
the external auditors’ fulfilment of the agreed audit plan and any
variations from the plan;
the robustness and perceptiveness of the auditors in their handling
of the key accounting and audit judgements; and
the content of the external auditor’s reporting on internal control.
Overview
Consequently, the Audit Committee concludes that it has acted in
accordance with its terms of reference and ensured the independence
and reviewed the effectiveness of the external auditors. The Audit
Committee also recommends to the Board that Deloitte LLP be
reappointed. The Chairman of the Audit Committee will be available
at the Annual General Meeting to answer questions on the work
of the Committee.
Dialogue with shareholders
Ongoing communication with shareholders is a high priority.
The Company undertakes a continuous programme of meetings with
institutional shareholders in the UK, Europe, the United States and the
MENA region. This programme includes but is not limited to one-on-one
meetings, investor days, conference calls and presentations at investor
conferences. In addition the Company makes formal presentations
at the time of its annual and interim results which are webcast and
disseminated on the Company’s website. The Chief Executive Officer,
Executive Vice-Chairman, Chief Financial Officer and other senior
corporate executives have all participated in the investor programme
during the period under review.
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Hikma Pharmaceuticals PLC Annual report 2009
Directors’ report
The Directors are pleased to present their report together with the audited financial statements for the year ended 31 December 2009.
Business Review
The company is required by the Companies Act 2006 to set out a fair
review of the business during the year and a description of the principal
risks and uncertainties facing the Company, noting the performance and
development of the Company during the year and the position at the
year end. The information that fulfils these requirements and which is
incorporated in this report by reference, is included in the following
sections of the Annual Report:
a review of the business and strategy and expected future developments
is set out in the Chairman’s statement on pages 6 and 7, the Chief
Executive’s Review on pages 12 to 15 and the Business and Financial
Review on pages 28 to 36;
the principal risks and uncertainties are set out on pages 37 to 39 and
financial risks are described on page 39;
key financial performance indicators are described on page 28;
information on environmental, social and community issues is set out
in our Corporate Responsibility report on pages 42 to 47;
the principal operating subsidiaries are set out on page 131;
the Corporate Governance report is set out on pages 54 to 59.
Principal activity
The principal activities of the Group are the development, manufacture
and marketing of a broad range of generic and in-licensed
pharmaceutical products in solid, semi-solid, liquid and injectable final
dosage forms. Hikma’s operations are conducted through three business
segments: Branded Pharmaceuticals, Injectable Pharmaceuticals, and
Generic Pharmaceuticals. The majority of Hikma’s operations are in
the MENA region, the United States and Europe.
The Group’s net sales, gross profit and operating profit are shown by
business segment in Note 4 to the consolidated financial statements.
Results and dividends
The Group’s profit for the year attributable to shareholders in 2009
was $78 million (2008: $57 million). The Board is recommending a final
dividend of 6.5 cents per share (approximately 4 pence) (2008: 4.0 cents).
The proposed final dividend will be paid on 27 May 2010 to shareholders
on the register on 16 April 2010, subject to approval at the Annual
General Meeting on 13 May 2010.
An interim dividend of 4.5 cents per share was paid on 16 October
2009 (approximately 2.8 pence per ordinary share) (2008: 3.5 cents)
which together with the final dividend, will make a total of 11.0 cents
per share for the period (2008: 7.5 cents)
Directors and their interests
The names of the Directors as at the date of this report, together with
details of their roles, backgrounds and abilities, are set out in the
Directors’ biographies on pages 50 and 51. Details of the independence
of Non-Executive Directors are set out in the Corporate Governance
report on page 54.
The Executive and Non-Executive Directors served the Company
throughout the year. At the 2010 Annual General Meeting, Ronald
Goode will retire in accordance with Article 104 of the Articles of
Association and, being eligible, will offer himself for re-election.
The explanatory notes to the Notice of Annual General Meeting sets
out why the Board believes Ronald Goode should be re-elected.
Details of Directors’ share-based incentives and interests in the
ordinary shares of the company are provided in the Remuneration
Committee Report on pages 67 to 74.
Creditor payment policy
The Company’s policy, which is also applied by the Group, is to settle
terms of payment with suppliers when agreeing the terms of each
transaction, ensure that suppliers are made aware of and abide by the
terms of payment. Trade creditors of the company at 31 December 2009
were equivalent to 63 days’ purchases (2008: 48 days), based on the
average daily amount invoiced by suppliers during the year.
Charitable and political contributions
During the year the Group made charitable donations of approximately
$1.2 million (2008: $2.4 million), principally to local charities serving
the communities in which the Group operates. Donations of medicines
accounted for approximately $108,000 (2008: $1.4 million) of total
donations made.
The Group does not make political donations.
Research and Development (R & D)
The Group’s investment in Research & Development during 2009
represented 2.6% of group revenue (2008: 3.8%). Further details on
the Group’s R&D activities can be found on page 34.
Going concern
Although the current economic conditions may affect short-term
demand for the Company’s products, as well as place pressure on our
customers and suppliers in terms of liquidity issues, the Directors believe
that the Group’s geographic spread, product diversity and large customer
and supplier base substantially mitigate these risks. In addition, the Group
operates in the relatively defensive generic pharmaceuticals industry
which we expect to be less affected compared to other industries that
are subject to greater cyclical changes.
The Group has $378 million of banking facilities of which
$193 million were undrawn as at 31 December 2009. These facilities
are well diversified across the operating subsidiaries of the Group and are
with a number of financial institutions. 44% of the Group’s short term
and undrawn long-term facilities are of committed nature. See Notes 24,
27 and 29 for details. The Directors continue to expect the short-term
facilities to be renewed upon maturity. In addition the Group maintained
cash balances of $68.0 million as at 31 December 2009. The Group’s
forecasts, taking into account reasonable possible changes in trading
performance, facility renewal sensitivities and maturities of long-term
debt, show that the Group should be able to operate well within the
levels of its facilities and their related covenants.
61
After making enquiries, the Directors believe that the Group is adequately
placed to manage its business and financing risks successfully despite
the current uncertain economic outlook. The Directors have formed a
judgement that there is reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. The Directors therefore continue to adopt the going
concern basis in preparing the financial statements.
Capital structure
Details of the authorised and issued share capital, together with
movements in the issued share capital during the year can be found
in Note 31 to the financial statements. The Company has one class of
Ordinary Shares which carries no right to fixed income. Each share
carries the right to one vote at general meetings of the Company.
As at 31 December 2009 the Company had 191,627,607 shares of
10 pence each in issue. During 2009 the Company issued 2,390,000
ordinary shares pursuant to the exercise of options under the Hikma
Pharmaceuticals PLC 2004 Stock Option Plan.
There are no specific restrictions on the size of a holding or on the
transfer of shares, which are both governed by the general provisions
of the Company’s Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders of the
Company’s shares that may have resulted in restrictions on the transfer
of securities or on voting rights. No person has any special rights with
regard to the control of the Company’s share capital and all issued
shares are fully paid.
Details of any significant shareholdings in the Company can be found
on page 61 of this report.
Details of the employee share schemes are set out in Note 36 to the
financial statements. Shares are also held by the Hikma Pharmaceuticals
Employee Benefit Trust (“EBT”) and are detailed in Note 33 to the
financial statements. The EBT has waived its right to vote on the shares it
holds and also to its entitlement to a dividend. No other shareholder has
waived the right to a dividend.
At the Annual General Meeting on 14 May 2009, the Directors
were authorised to issue relevant securities up to an aggregate nominal
amount of £6,320,227, and to be empowered to allot equity securities
for cash on a non pre-emptive basis up to an aggregate nominal amount
of £948,034, at any time up to 30 June 2010. The Directors propose to
renew these authorities at the Annual General Meeting to be held on
13 May 2010 for a further year. In the year ahead, other than in respect
of the Company’s obligations to satisfy rights granted to employees
under its various share-based incentive arrangements, the Directors have
no present intention of issuing any of the authorised but unissued share
capital of the Company.
The powers of the directors are determined by its Articles of Association,
the Combined Code and other relevant UK legislation. At the AGM on
13 May 2010 the Directors will propose, for shareholder approval, the
adoption of new Articles of Association to take effect from the close
of the meeting. The amendments to the Articles are to reflect the
changes to English Company law due to the final amendments to the
Companies Act 2006 which took effect in October 2009. Full details
of the amendments to the Articles are listed below. Directors powers
are detailed in the Corporate Governance Report starting on page 54.
The Articles give the Directors the power to appoint and remove directors
and they also provide for re-election at three yearly intervals. The power to
issue and allot shares contained in the Articles, are subject to shareholder
approval at each annual general meeting. The Articles, which are
available on the website, may only be amended by special resolution
of the shareholders.
Significant Agreements and Contracts
Due to the nature of the Group’s business, members of the Group are
party to agreements that could alter or be terminated upon a change
or control of the Group following a takeover. However, none of these
agreements is individually deemed to be significant in terms of its
potential impact on the business of the Group taken as a whole.
The Directors are not aware of any agreements between the Company
and its directors or employees that provide for compensation for loss
of office or employment that occurs because of a takeover bid.
There are no persons, with whom the Company has contractual or
other arrangements, who are deemed to be essential to the business
of the Company.
Pre-emptive issue of Ordinary Shares
During the year under review, and in the period since 1 November 2005,
the date of the Company’s IPO, the Company did not issue any Ordinary
Shares pursuant to an authority given by shareholders at annual general
meeting to issue Ordinary Shares for cash on a non pre-emptive basis,
other than in respect of the placing undertaken on 17 January 2008.
Directors’ indemnities
The Company has made qualifying third party indemnity provisions for
the benefit of its directors. These indemnities are uncapped in amount in
relation to losses and liabilities which directors may incur to third parties
in the course of the performance of their duties.
Substantial shareholdings
As at the date of this document, the Company had been notified
pursuant to sections 89A to 89L of the Financial Services and Markets
Act 2000 and Rule 5 of the Disclosure and Transparency Rules of the
UKLA of the following interests in the voting rights attaching to shares
in the capital of the Company:
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Substantial Shareholdings
Name of shareholder
Darhold Limited*
Number of shares
Percentage held
57,183,028
29.82%
* Messrs Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry, each being
a Director and shareholder of the Company, are shareholders in the capital of Darhold Limited.
Samih Darwazah, Said Darwazah and Mazen Darwazah are also Directors of Darhold Limited.
62
Hikma Pharmaceuticals PLC Annual report 2009
Directors’ report continued
The Takeover Code – Rule 9
At the Annual General Meeting held on 14 May 2009, a vote of the
independent shareholders of the Company approved the award of up
to an aggregate of 200,000 ordinary shares pursuant to the Company’s
2006 Long Term Incentive Plan to Said Darwazah and Mazen Darwazah
(the “LTIP Holders”) and 3,000 ordinary shares pursuant to the
Management Incentive Plan to Hana Ramadan. Because of the
relationship of the LTIP Holders with Darhold Limited, who at the
time of the Annual General Meeting held 57,183,028 Ordinary Shares
(at 7 April 2009 representing 29.82% of the issued share capital of the
Company, and as at 16 March 2010 being the latest practicable date
prior to the publication of this document, holding 57,183,028 Ordinary
Shares, representing 29.82% of the issued share capital of the
Company), each of the LTIP Holders and MIP holder (together with
certain other identified individuals at that date) was treated as acting
in concert with Darhold Limited for the purposes of the Takeover Code
(the “Concert Party”). As at 7 April 2009, the Concert Party held, in
aggregate, interests in 66,097,758 Ordinary Shares in the capital of
Hikma (then representing 34.86% of the then issued share capital of
the Company). As at 16 March 2010 being the latest practicable date
prior to the publication of this document, the Concert Party held, in
aggregate, interests in 65,878,430 ordinary shares in the capital of
Hikma (representing 34.354% of the then issued share capital
of the Company). On full exercise of the options under the Hikma
Pharmaceuticals 2004 Stock Option Plan (the “2004 Plan”) and full
vesting of the LTIP and MIP awards, the Concert Party would potentially
have, in aggregate, interests in 66,392,930 shares in the capital of the
Company (representing 34.53% of the enlarged issued share capital
of the Company, on the basis that no Ordinary Shares were issued
other than pursuant to the exercise of such options or vesting of LTIP
and MIP awards).
During the period from the Annual General Meeting in 2009 to
16 March 2010, the LTIP and MIP awards’ holders together with other
members of the Concert Party who hold options over ordinary shares
pursuant to the 2004 Plan (the “Option Holders”) have exercised, in
aggregate, options over 664,000 Ordinary Shares in the capital of the
Company, of which 35,000 Ordinary Shares were sold immediately
upon exercise, 480,000 Ordinary Shares were retained and 100,000
were retained but subsequently disposed of by the option holder.
Auditors
Each person who was a Director of the Company at the date when this
report was approved confirms that:
so far as the Director is aware, there is no relevant audit information of
which the Company’s auditors are unaware; and
the Director has taken all the steps that he ought to have taken as a
Director to make himself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.
Deloitte LLP have expressed their willingness to continue in office
as auditors and a resolution to reappoint them will be proposed at the
forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at Regus,
2nd Floor, Berkeley Square House, Berkeley Square, London W1J 6BD,
United Kingdom on Thursday, 13 May 2010, starting at 10.30 a.m.
The Notice convening the meeting is given in a separate document
accompanying this document, and includes a commentary on the
business of the AGM, and notes to help shareholders exercise their
rights at the meeting. The Chairmen of the Audit, Remuneration and
Nomination committees will be at the Annual General Meeting to
answer questions from shareholders.
Approved by the Board of Directors on 16 March 2009 and signed on
its behalf by
Henry Knowles
Company Secretary
16 March 2010
63
Remuneration Committee report
Introduction
This report has been prepared in accordance with The Large & Medium-
Sized Companies and Groups (Accounts and Reports) Regulations 2008,
(the “Regulations”). The report also meets the relevant requirements of
the Listing Rules of the Financial Services Authority and describes how the
Board has applied the principles and complied with the provisions of the
Combined Code and the Markets Law relating to directors’ remuneration.
As required by the Regulations, an advisory resolution to approve this
report will be proposed at the Annual General Meeting of the Company
at which the financial statements will be approved.
The auditors are required to report on the”auditable part” of this
report and to state whether, in their opinion, that part of the report has
been properly prepared in accordance with the Companies Act 2006 and
the Regulations. The report is therefore divided into separate sections for
unaudited and audited information.
Unaudited Information
Remuneration Committee
The Directors who were members of the Committee during the year
under review are set out on page 56 of the Directors’ report.
The responsibility for the establishment of a remuneration policy and
its cost is a matter for the full Board, on the advice of the Remuneration
Committee. The ongoing recommendations of the Remuneration
Committee have been approved without amendment by the Board for
submission to shareholders.
The Remuneration Committee is responsible for developing policy
on remuneration for Executive Directors and senior management and for
determining specific remuneration packages for each of the Executive
Directors. The Remuneration Committee members have no personal
financial interest other than as shareholders in matters to be decided,
no potential conflicts of interests arising from cross directorships and no
day-to-day involvement in running the business.
The Remuneration Committee sought the assistance of the Chairman,
the Chief Executive Officer and Executive Vice Chairman on matters
relating to Directors’ performance and remuneration in respect of the
period under review. The Chairman, Chief Executive Officer, Executive
Vice Chairman and General Counsel may attend meetings of the
Remuneration Committee by invitation except when their individual
remuneration arrangements are discussed. No Director takes part in
discussions relating to his own remuneration or benefits. As detailed
below, during the year the Remuneration Committee received independent
advice on executive compensation from PricewaterhouseCoopers LLP.
No services other than those detailed in this report were provided to the
Company by PricewaterhouseCoopers LLP during the year under review.
The Remuneration Committee is formally constituted with written
terms of reference which describe the full remit of the Committee’s role
described. The terms of reference are available on the Company’s website
or on request by shareholders in writing from the Company Secretary
whose contact details are set out on page 129 of this Annual Report.
Philosophy behind Remuneration Committee’s approach
The Company’s remuneration policy is designed to encourage, reward
and retain executives and the Remuneration Committee believes that
shareholders’ interests are best served by remuneration packages which
have a large emphasis on performance related pay, thus encouraging
executives to focus on delivering the Group’s business strategy.
By providing meaningful incentives to executives the Company’s
policy seeks to ensure that the appropriate balance between fixed
and performance related pay is maintained.
During 2009 the Hikma Group undertook a review of Company
remuneration to ensure that the overall remuneration practices achieved
the strategic aims of the Group and to confirm and ensure that,
taking account of all employment conditions, the remuneration of all
employees, management and directors remained aligned. In this way
the policy for remuneration of Executive Directors was benchmarked
against employment and remuneration polices across all employees.
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Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
Remuneration policy 2009
Overall policy
The Remuneration Committee’s policy during the year under review was to set the main elements of the remuneration package at the following
quartiles in comparison to the Company’s Comparator Group:
Base salary
Lower Quartile
to Median
Annual bonus
potential
Upper Quartile
Pension
Benefits in kind
Potential total short-term
remuneration available
Potential annual
share awards
Lower Quartile Lower Quartile
to Median to Median
Median to
Upper Quartile
Upper Quartile
Potential total
compensation value
Median to
Upper Quartile
This supports the performance based culture of the Company. Fixed costs are minimised and total
short-term remuneration will only reach and exceed the median if the performance-based bonus
is earned for the relevant financial year.
The policy in respect of long-term
incentives and potential compensation
value is an extension of the policy on total
short-term remuneration. Executives will
only receive a market competitive package
if the annual bonus and long-term
incentives are earned.
With the difficult global economic backdrop to 2009 and the banking industry turmoil, there has been much focus on executive pay as a potential
causal factor in the banking crisis. This has had widespread coverage and has generated significant political pressure for change to the practices of
the financial services industry in particular. This culminated in the publication of the Walker Review in November 2009, making a number of new
recommendations of principle to be applied to remuneration in the financial services sector from the 2010 reporting year onwards. In addition, there
have been a number of associated publications from shareholder bodies and institutional investors clarifying their expectations for remuneration in
2009 and a draft revised UK Corporate Governance Code has been issued for consultation.
In formulating the application of its policy for 2009 and future years, the Remuneration Committee has been cogniscent of the evolving landscape
in remuneration developments. The Remuneration Committee is confident that its policies remain effective and robust.
2009 Comparator Group
During 2009 the Company updated its Comparator Group to ensure that it remained appropriate for the Company on an ongoing basis, reflecting the
increase in size and further internationalisation of the Company and reacting to the significant consolidation in the pharmaceutical industry that had
affected a significant proportion of the previously selected Comparator Group companies.
The constituents of the Company’s Comparator Group (“CG”) for benchmarking remuneration during 2009 were as follows:
Name
Amylin Pharmaceuticals Inc
AstraZeneca PLC
BTG PLC
Crucell NV
Endo Pharmaceuticals Holdings
Forest Laboratories Inc
Grilfols SA
Name
Hospira Inc.
Impax Labs Inc
Name
Sanofi Aventis
Sepracor Inc.
King Pharmaceuticals Inc.
Shire Pharmaceuticals PLC
Merck KgaA
Mylan Inc
Novartis AG
Prostraken Group PLC
UCB SA
Valeant Pharmaceutical International
Watson Pharmaceuticals Inc
Factors the Remuneration Committee took into account when selecting the 2009 CG included:
the industry within which the Company operates, specifically taking into account both the international nature of the Company’s business
and its competitors;
the international nature of the Company’s current executive team and potential recruits to that team;
the market capitalisation, turnover and number of employees of the Company; and
the UK listing environment of the Company.
65
Throughout this report, references to quartiles are to quartiles in the Comparator Group.
The 2009 Comparator Group was used as the total shareholder return performance condition comparator group for awards granted in 2009 under
the Hikma Pharmaceuticals PLC 2006 Long-Term Incentive Plan (“LTIP”) and will also be used for the 2010 LTIP Awards. The Company has historically
used the same comparators for both benchmarking remuneration and the performance condition for awards granted during the relevant year, and
will continue to do so in 2010.
Ongoing review
The Remuneration Committee continues to review the remuneration policy on an annual basis to ensure it remains appropriate for
the financial year under review. Factors taken into account by the Remuneration Committee include:
market conditions affecting the Company;
the recruitment market in the Company’s sector;
changing market practice;
changing views of institutional shareholders and their representative bodies; and
the current economic climate.
The Remuneration Committee has oversight of the main reward structures throughout the Company and was involved in the Company review
mentioned above. Following both this Company review and the Committee’s specific review for Executive Directors the Committee is satisfied that the
Company’s incentive structures are consistent with the risk profile of the Company set by the Board and also encourage a long-term sustainable view
to be taken by participants. One of the features of the Company’s remuneration which the Committee believes is particularly relevant in this context
is the availability of plans encouraging wide share ownership at all levels of management.
It is the current intention of the Remuneration Committee to apply the 2009 policy in 2010.
2009 Balance between fixed and variable performance-based compensation
The chart below demonstrates the balance between the potential fixed and variable performance-based compensation for each Executive Director for
the year ended 31 December 2009.
Said Darwazah
Mazen Darwazah
Elements of Executive Directors’ remuneration
Base salary
Fixed compansation
is calculated as:
Variable performance
compensation is calculate as:
Salary
Benefits
Pension contribution
Maximum bonus available
Fair market value of maximum
potential LTIP award
39.4%
40.8%
60.6%
59.2%
Policy 2009 and 2010 – Lower quartile to median The Company’s remuneration policy is to set the levels of base salary for the Executive Directors
below the median to support a performance based culture.
When determining the base salary of the Executive Directors the Committee takes into consideration:
the levels of base salary for similar positions with comparable status, responsibility and skills in organisations of broadly similar size and complexity, in
particular the lower quartile and median salary levels of those comparable companies within the pharmaceuticals industry and the Comparator Group;
the performance of the individual Executive Director;
the individual Executive Director’s experience and responsibilities; and
pay and conditions throughout the Company.
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Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
The following tables summarises the base salary of Executive Directors:
Name
Said Darwazah
Median
Lower quartile
Mazen Darwazah
Median
Lower quartile
2009
Salary
2010
Salary
$630,000
$630,000
$1,082,000
$804,000
Median Rise
in Comparator
Group
7%
Rise
0%
$420,000
$420,000
0%
11%
$500,000
$432,000
After reviewing the above criteria, the Committee elected not to increase Executive Directors’ salaries for 2010. It remains the Committee’s ongoing
policy that, save in exceptional circumstances, only modest rises in base salary should be required.
Annual performance related bonus
Policy 2009 and 2010 – Upper quartile bonus potential Bonus payments are not pensionable. The following tables summarise the main features of
the Company’s executive bonus plan.
Bonus
Company bonus potential
Upper Quartile CG
Median CG
2009 Bonus Paid as percentage of salary
Upper Quartile Bonus Payments in the CG as a percentage of salary
Said Darwazah Mazen Darwazah
100%
206%
190%
73%
105%
100%
197%
151%
73%
82%
The maximum target bonus potential is 100% of salary. It is possible for exceptional performance to earn up to a total maximum bonus of 200% of
salary. The maximum bonus potentials for 2010 will remain the same as those applied for 2009.
The bonuses for 2009 have been paid on the basis of the level of the achievement of the performance targets. The table below shows the principal
performance targets used for 2009 and their percentage satisfaction.
Said Darwazah
Profit after tax
Operational milestones
Personal business targets
Total
Mazen Darwazah
Profit after tax
Operational milestones
Personal business targets
Total
Percentage
of maximum
bonus potential
subject to target
Percentage
satisfaction of
bonus target
Percentage of
salary payable
50%
30%
20%
50%
30%
20%
96%
16%
100%
96%
33%
75%
48%
5%
20%
73%
48%
10%
15%
73%
The targets for the annual bonus plan are reviewed and agreed by the Remuneration Committee each year to ensure that they are appropriate to the
current market conditions and position of the Company and in order to ensure that they continue to remain challenging. Underlying performance
targets for Executive Directors’ bonuses were reviewed during 2008 to ensure that they remained in line with the Group’s overall business strategy in
2009. The Committee applied the same parameters in 2009 and it is the opinion of the Committee that the overall nature of the conditions remains
appropriate for the requirements of the Group in 2010.
67
Share incentives
Policy 2009 and 2010 – Upper quartile The Remuneration Committee’s policy is to provide annual share grants to senior executives at a maximum of
the upper quartile level compared to the Comparator Group. Ongoing share incentives are provided to the Executive Directors solely through the LTIP.
The Remuneration Committee believes that share awards under the LTIP enable the Company to provide a competitive incentive and retention tool
which is also cost effective in respect of both shareholder dilution and income statement expense. Furthermore, the proposed grant of awards with
the attached performance condition ensures that the Company’s comparative Total Shareholder Return (“TSR”1) performance against the Comparator
Group is at least at the upper quartile before executives receive the full benefit of their share incentives. This structure demonstrates the Remuneration
Committee’s desire to correlate incentive arrangements with the achievement of substantial performance.
The Remuneration Committee granted the following awards to executive directors during 2009.
Name
Said Darwazah
Mazen Darwazah
Percentage
of salary
127.3%
114.5%
UQ in CG
percentage
of salary
283%
176%
In 2009 the Company introduced a new Management Incentive Plan. The levels of LTIP awards made in 2009 therefore reflect the smaller population of
participants in the LTIP.
The following table summarises the main features of the LTIP in 2009 and its proposed operation during 2010.
Maximum annual grant face value as percentage of salary and performance condition
Maximum annual grant 300% (current normal operating maximum set by the Remuneration Committee 200%).
The Awards will be subject to comparative TSR performance against the Comparator Group. 20% of Awards will be released for median performance
with full release occurring for upper quartile comparative performance. The Remuneration Committee will also ensure that the underlying financial
performance of the Company is consistent with its TSR performance. When considering this underlying financial performance the factors taken into
account by the Remuneration Committee will include profit after tax, revenue growth and the achievement of operational milestones.
Maximum grants for 2010 face value2 as a percentage of salary
Said Darwazah
Mazen Darwazah
200%
200%
The following table sets out the level of release of current subsisting LTIP awards if the Company’s performance measured as at 31 December 2009
continued until the end of the relevant performance period.
LTIP Grant
2007 LTIP Grant
2008 LTIP Grant
2009 LTIP Grant
Company TSR ranking against CG
Fourth of 17 companies
Ninth of 17 companies
Second of 20 companies
Percentage of Award released
if performance measured as at
31 December 2009 continued
to the end of the relevant
performance period
100%
20%
100%
It should be noted that the real value received by the Executive Directors under the share incentive arrangements will be dependent upon the degree to
which the performance conditions are satisfied at the end of the three year performance period and the share price of the Company at that time.
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1 Total Shareholder Return (“TSR”) – is a measure showing the return on investing in one share of the Company over the performance period (the return is the value of the capital gain and reinvested dividends).
It is normally used comparatively and the Company which achieves the best return is ranked number one.
2 Face value for awards under the LTIP face value is the aggregate market value of the shares subject to the award at the date of grant.
68
Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
Basis of performance condition selection and measurement
Comparative TSR was selected as the performance condition for the proposed awards by the Remuneration Committee as it ensures that the executives
have outperformed their peers over the measurement period in delivering shareholder value before being entitled to receive any of their awards
irrespective of general market conditions. The Remuneration Committee will provide a full explanation and justification at the time of the release of
the award and why it believes that the underlying financial performance of the Company is consistent with this TSR performance.
The Remuneration Committee determines whether the performance conditions for share awards are satisfied. The Committee has appointed
PricewaterhouseCoopers LLP to assist in the ongoing calculation of TSR in accordance with the rules of the LTIP. The Committee will approve these
figures prior to the release of any award.
Dilution
In accordance with the guidelines set out by the Association of British Insurers (“ABI”) the Company can issue a maximum of 10% of its issued share
capital in a rolling ten year period to employees under all its share plans and a maximum of 5% of this 10% for discretionary share plans. Under the
LTIP rules, grants of no more than 3% of the issued ordinary share capital of the Company may be awarded in the first three years following the
Company’s IPO, undertaken in 2005.
The following table summarises the current level of dilution resulting from Company share plans following the IPO:
Type of plan
All Employee Share Plans (10% limit)
Discretionary Share Plans (5% limit)
Share awards as a percentage
of issued share capital as at
31 December 2009 in a rolling
ten year period
Share awards as a percentage
of issued share capital as at
31 December 2009 granted
during the year
0%
2.145%
0%
0.77%
The Company has not implemented any all-employee share incentive arrangements.
It is the Company’s current intention that LTIP awards granted in 2009 will be satisfied by newly issued shares.
Post-employment benefits
Policy 2009 and 2010 – Lower quartile to median The Executive Directors participate in the Hikma Pharmaceuticals Defined Contribution Retirement
Benefit Plan (the “Benefit Plan”) in accordance with the Rules of the Benefit Plan relevant to employees of the Group based in Jordan. Under the
Benefit Plan the Group matches employee contributions made to the Benefit Plan. These are fixed at 5% of applicable salary. Participants are entitled
to 30% of the Group’s contributions to the Benefit Plan after three years of employment with the Group, and an additional 10% in each subsequent
year. The participant’s interest in the Group’s contribution fully vests after ten years of employment.
The following table sets out the percentage post-employment contributions compared to the Comparator Group.
Company
Upper quartile
Median
Lower quartile
Said Darwazah Mazen Darwazah
1.35%
1.86%
30%
25%
15%
25%
15%
10%
In addition, pursuant to applicable law, each of the Executive Directors receives contributions as a percentage of salary which is paid by the Group into
Government social security systems.
Benefits in kind
Policy 2009 and 2010 – Market practice The Company provides the normal benefits in kind for executives of this level in a company of this size, such
as company cars, healthcare and life insurance.
69
Total compensation
Policy 2009 and 2010 – Median to upper quartile depending on performance The following table shows the value of each of the main elements of
the remuneration package provided to the Executive Directors during the year ended 31 December 2009.
Name
Said Darwazah
Mazen Darwazah
Other remuneration matters
Salary
$000
Bonus paid
$000
Benefits
$000
Total payments
$000
FMV LTIP
$000
Total
actual and FMV
$000
Total on target in
2009 CG at
median
$000
$630
$420
$458
$305
$95
$71
$1,183
$796
$486
$292
$1,669
$1,088
$5,408
$1,708
Directors’ shareholding policy
The Company does not have a formal directors’ shareholding requirement due to the substantial shareholdings of the Executive Directors. The
Committee, however, wholeheartedly supports the alignment of interests created by a minimum level of executive shareholding and should the
make-up of the Board change would consider the introduction of a formal shareholding requirement.
Management Incentive Plan (“MIP”)
During 2009 the Company made the first awards to management under the MIP. Under the MIP, the Company will make grants of nil cost option
awards to executive management across the Group based on the satisfaction of annual performance targets. The key features of the MIP are
as follows:
the MIP is open to management level employees across the Group below senior executive level;
participation in the LTIP will preclude participation in the MIP;
participants will be notified of a maximum monetary entitlement, (the maximum award level is anticipated to be 50% of salary p.a.) the value of which
will be awarded to participants in the form of nil cost options over shares, based on annual performance against individual and Group KPIs;
nil cost options will vest two years after the date of award (being approximately three years after the commencement of the financial year to which
the award relates), subject to the participant remaining in employment with the Group during this period. Once the options have been awarded,
the continued employment requirement is the only condition for vesting.
The MIP awards made in respect of 2009 will be satisfied out of market purchased shares held for the purpose in the Group’s Employment Benefit
Trust. The AGM to be held on 13 May 2010 the Company will seek approval from shareholders to satisfy ongoing awards under the MIP from newly
issued shares. The principal terms of the MIP will be set out in a Circular accompanying the Annual Report.
Executive Directors’ contracts
Details of the service contracts of the Executive Directors of the Company in force at the end of the year under review are as follows:
Name
Said Darwazah
Company notice period
Contract date
Unexpired term of contract
Potential termination payment
12 months
1 July 2007
Rolling contract
Mazen Darwazah
12 months
25 May 2006
Rolling contract
The Executive Directors’ contracts are on a rolling basis, unless terminated by at least 12 months’ written notice. This arrangement is in line with best
corporate practice for listed companies. In the event of the termination of an executive’s contract, salary and benefits will be payable during the notice
period (there will, however, be no automatic entitlement to bonus payments or share incentive grants during the period of notice other than in
accordance with the rules of the relevant incentive plan). The Remuneration Committee will ensure that there have been no unjustified payments for
failure on an Executive Director’s termination of employment. There are no special provisions in the contracts of employment extending notice periods
on a change of control, liquidation of the Company or cessation of employment.
12 months salary
and benefits
12 months salary
and benefits
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Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
External appointments
The Committee recognises that Executive Directors may be invited to take up non-executive directorships or public sector and not-for-profit
appointments, and that these can broaden the experience and knowledge of the director, from which the Company can benefit. Executive Directors
may therefore accept such appointments as long as they do not lead to a conflict of interest, and are allowed to retain any fees paid under such
appointments. During the year under review, Said Darwazah and Mazen Darwazah received fees of US$11,850 and US$3,385 respectively, in
respect of such appointments.
Non-Executive Directors’ Fees
Policy 2009 – Upper Quartile The remuneration of the non-executive directors is determined by the Board based upon recommendations from
the Chief Executive Officer and Executive Vice Chairman and is within the limits set by the Articles of Association.
The nature of the Company’s business is international, requiring the Non-Executive Directors to travel to the USA, Middle East and Europe.
The Board is therefore made up of Non-Executive Directors with a wide range of experience both in the UK and internationally. The use of options for
Non-Executive Directors is very prevalent in the US and also to some extent internationally. However, as a UK listed company complying with UK best
practice it is not considered appropriate to grant options to the Company’s Non-Executive Directors. To ensure that the Company remains able to attract
the appropriate calibre of candidate and to take account of its inability to grant options, the Board has therefore set its fee policy at the upper quartile.
The individual basic and committee fees, which are paid in £ Sterling, are as follows:
Name
Samih Darwazah
Michael Ashton
Ali Al-Husry
Breffni Byrne
Ronald Goode
Sir David Rowe-Ham
2009
Total fee
£000
157.5
67.5
60
75
60
67.5
Basic fee
£000
Chairmanship fee
£000
Committee fee
£000
157.5
63
63
63
63
63
–
7.5
–
15
–
7.5
–
7.5
–
7.5
7.5
7.5
2010
Total fee
£000
157.5
78
63
88.5
70.5
78
Upper quartile
fees in CG
£000
293
136
129
139
135
135
A review of the level of Non-Executive Director fees was conducted during 2009. The Board commissioned PricewaterhouseCoopers LLP to conduct a
study of non-executive remuneration against the Comparator Group. This showed that, in relation to the overall Non-Executive Director fee policy set
by the Group, Hikma’s Non-Executive Director fees remained out of step with those of the Comparator Group. Following the review it was resolved
by the Board that the composition of the Non-Executive Director fees should be updated to reflect not only the work undertaken as a chairman of a
board committee, but also as a member of Board committees. Therefore, a Board committee membership fee will be paid in addition to the basic fee
to those Non-Executive Directors who sit on the board committees. In conjunction with the review the Board also resolved that from 1 January 2010,
the basic fees of Non-Executive Directors should be increased to the amounts set out above. There has been no change in the fees of the Non-Executive
Chairman. The increases continue to move Non-Executive fees back towards the Group’s stated policy, though overall Non-Executive fees remain below
the level set by Group policy. The Board continues to believe that it is important to ensure that the fees paid to Non-Executives remain competitive, that
they reflect the increasingly important role played by Non-Executives and allow the Nomination Committee to recruit Non-Executive Directors of the
appropriate calibre in accordance with the requirements of succession planning.
Non-Executive Directors do not participate in any bonus plan or share incentive programme operated by the Company and are not entitled to
pension contributions or other benefits provided by the Company. The Non-Executive Directors do not have service contracts, but have letters of
appointment with the Company. Each appointment is terminable on one months’ notice from either the Company or the Director, but is envisaged to
be for an initial period of up to 36 months, subject to the terms of the Company’s Articles of Association, the Companies Act and shareholder approval.
Name
Samih Darwazah
Michael Ashton
Ali Al-Husry
Breffni Byrne
Ronald Goode
Sir David Rowe-Ham
Date of original appointment
Notice payment
17 July 2007
1 month
14 October 2005
1 month
14 October 2005
1 month
14 October 2005
1 month
12 December 2006
1 month
14 October 2005
1 month
71
Total Shareholder Return performance graph
The graph shows the Company’s performance, measured by total shareholder return (“TSR”), compared to the constituents of the Comparator Group
and FTSE 250 Index from 1 November 2005 to 31 December 2009. The Comparator Group has been selected as it is the group of companies whose
performance the Company compared to in determining the release of awards under the LTIP. The FTSE 250 Index has been selected to provide a
broader comparator of the Company’s performance and is the main Index in which the Company’s shares are included.
Total Shareholder Return from 1 November 2005
(percent)
Hikma Pharmaceuticals PLC
FTSE 250 Index
FTSE 350/Pharmaceuticals & Biotechnology
100
)
%
(
R
S
T
80
60
40
20
0
–20
–40
11/05
05/06
11/06
05/07
11/07
05/08
11/08
05/09
11/09
Audited information
Aggregate Directors’ remuneration for 2009 and 2008
The total amounts for Directors’ remuneration were as follows:
Emoluments
Compensation for loss of office
Gains on exercise of share options
Amounts receivable under long-term incentive schemes
Money purchase pension contributions
Total
2009
US$
2008
US$
2,739,389
2,637,686
–
–
4,644,835
4,120,020
–
–
–
–
7,384,224
6,757,706
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Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
Directors’ emoluments and compensation
Director
Executives
Said Darwazah
Mazen Darwazah
Non-Executives
Samih Darwazah
Ali Al-Husry
Michael Ashton
Breffni Byrne
Ronald Goode
Sir David Rowe-Ham
Aggregate Emoluments
Fees/Basic salary
US$
Other benefits*
US$
Annual bonuses
US$
2009 Total
US$
2008 Total
US$
630,000
420,000
94,520
71,418
458,325
1,182,845
1,013,011
305,550
796,968
765,487
245,693
93,431
105,113
116,795
93,431
105,113
–
–
–
–
–
–
–
–
–
–
–
–
245,693
278,255
93,431
105,616
105,113
118,829
116,795
132,043
93,431
105,616
105,113
118,829
1,809,576
165,938
763,875
2,739,389
2,637,686
*Other benefits include provision of health insurance, company car, medical expenses and statutory contributions to Government social security funds
Directors’ post-employment benefits
Each of the Executive Directors received contributions to the Hikma Pharmaceuticals Defined Contribution Retirement Benefit Plan (Jordan) during the
year under review. The contributions paid by the Group were as follows:
Director
Said Darwazah
Mazen Darwazah
2009
US$
8,505
7,818
2008
US$
8,505
7,818
Directors’ interests in shares
The table below details the Directors’ holdings in the share capital of the Company, including the changes between 31 December 2009 and the date of
this document.
Director
Samih Darwazah
Said Darwazah
Mazen Darwazah
Michael Ashton
Ali Al Husry
Breffni Byrne
Ronald Goode
Sir David Rowe-Ham
Total shares:
Ordinary shares of 10 pence
1 January
31 December
2009
2009
16 March
2010
2,195,450
2,515,450
2,515,450
413,445
413,445
413,445
777,591
986,591
986,591
4,566
18,566
18,566
1,109,748
1,109,748
1,109,748
10,000
10,000
10,000
9,000
9,000
9,000
10,000
10,000
10,000
4,259,800
5,072,800
5,072,800
Each of Samih Darwazah, Said Darwazah, and Mazen Darwazah are directors of Darhold Limited, which is therefore a connected person of these
individuals for the purposes of the Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority. Samih Darwazah,
Said Darwazah Mazen Darwazah and Ali Al-Husry are also shareholders of Darhold Limited. At the date of this document, Darhold Limited held
57,183,028 Ordinary Shares in the capital of the Company.
73
Directors’ share options
The aggregate emoluments disclosed above do not include any amounts or the value of options to acquire Ordinary Shares in the capital of the
Company granted or held by the Executive Directors.
Options granted under the 2004 Plan are not subject to performance criteria, though vesting of options under the 2004 Plan was conditional on
the successful listing of the Company’s share on the London Stock Exchange. During the year Samih Darwazah continued to hold options over shares
awarded to him during his period as an executive of the Company, as he remained a qualified holder under the terms of the 2004 Stock Option Plan.
During the year, Samih Darwazah exercised options over 320,000 Ordinary Shares of the Company, and Mazen Darwazah exercised options over
320,000 Ordinary Shares of the Company. Samih Darwazah and Mazen Darwazah no longer hold any options under the 2004 Plan. No other
options were exercised by Directors during the year and no options expired unexercised. Furthermore, there were no variations to the terms and
conditions of share options during the year.
Hikma Pharmaceuticals PLC 2004 Stock Option Plan
Director
Samih Darwazah
Said Darwazah
Mazen Darwazah
Number ofoptions
As at
31 December
2009
As at
1 January
2009
No. of options
exercised
during the year
Exercise price
(US$)
Price paid
for award
Initial date
of vesting**
Date of expiry
–
–
–
320,000
320,000
0.9075*
–
–
–
320,000
320,000
0.9075*
–
–
–
1 Nov
2005
–
1 Nov
2005
11 Oct
2014
–
11 Oct
2014
*Representing the Exercise price of options following the share re-organisation undertaken on 31 October 2005. Options were awarded on 12 October 2004 with an Exercise price of US$3.63
** Share Options became exercisable following the successful listing of the Company’s shares on the London Stock Exchange. Options under the 2004 Plan have phased vesting over five years, with 20% vesting
each year on the anniversary of award, being 12 October.
The gains/notional gains made by Directors on the exercise of their stock options during the year were as follows:
Director
Samih Darwazah
Mazen Darwazah
Total
Options
exercised
320,000
160,000
160,000
Date
14 Oct
2009
15 April
2009
27 Nov
2009
Share price
(£)
Exchange
rate (US$)
Gain
(US$)
Held/Sold
4.70
1.581 2,377,824
Held
3.90
1.4878
928,387
Held
5.04
1.66 1,338,624
Held/Sold
4,644,835
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Hikma Pharmaceuticals PLC Annual report 2009
Remuneration Committee report continued
Hikma Pharmaceuticals PLC 2006 Long Term Incentive Scheme
Director
Said Darwazah
Mazen Darwazah
Director
Said Darwazah
Mazen Darwazah
No. of LTIP shares
As at
31 December
2009
As at
1 January
2009
315,000
190,000
179,000
104,000
No. of LTIP shares
100,000
90,000
125,000
50,000
54,000
75,000
Price paid
for award
Exercise price
Date of award
Initial date of
vesting
Date of expiry
–
–
–
–
–
–
nil
nil
nil
nil
nil
nil
10 Sept
2007
29 April
2008
19 May
2009
10 Sept
2007
29 April
2008
19 May
2009
10 Sept
2010
29 April
2011
19 May
2012
10 Sept
2010
29 April
2011
19 May
2012
10 Sept
2017
29 April
2018
19 May
2019
10 Sept
2017
29 April
2018
19 May
2019
The closing market price for the Ordinary Shares on 31 December 2009 was 510 pence. During the period from 1 January 2009 to the year-end the
share’s closing price ranged from a low of 316 pence to a high of 522.5 pence.
Audit
The emoluments and Directors’ interests’ information disclosed in the Directors’ report on remuneration, which is required by Schedule 8 of the
Regulations and the Companies Act 2006 (as amended), has been audited.
Approved by the Board of Directors on 16 March 2010 and signed on its behalf
Michael Ashton
Chairman of the Remuneration Committee
75
Directors’ Responsibility Statement
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with the International
Financial Reporting Standards as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
2. the management report, which is incorporated into the Directors’
report, includes a fair review of the development and performance of
the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
By order of the Board
Said Darwazah
Chief Executive Officer
Mazen Darwazah
Executive Vice Chairman, CEO MENA
16 March 2010
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare such financial
statements for each financial year. Under that law the Directors are
required to prepare Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS Regulation and have also chosen
to prepare the parent company financial statements under IFRSs as
adopted by the European Union. Under company law the Directors
must not approve the accounts unless they are satisfied that they give
a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period. In preparing these
financial statements, the Directors are required to:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity’s financial position and financial performance; and
make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping proper accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.
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Hikma Pharmaceuticals PLC Annual report 2009
Independent auditors’ report to the members of Hikma PLC
We have audited the financial statements of Hikma Pharmaceuticals
PLC for the year ended 31 December 2009 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
and the Company Balance Sheets, the Consolidated and the Company
Statements of Changes in Equity, the Consolidated and the Company
Cash Flow Statements and the related notes 1 to 56. The financial
reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and as regards the parent Company
financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement,
the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures
in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the Parent
Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the
financial statements.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the
Group’s and of the Company’s affairs as at 31 December 2009 and
of the Group’s profit for the year then ended;
the Consolidated financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
the Company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied
in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 2 to the Group financial statements, the Group
in addition to complying with its legal obligation to apply IFRSs as
adopted by the European Union, has also applied IFRSs as issued
by the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with IFRSs
as issued by the IASB.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
the information given in the Directors’ Report for the financial year for
which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
the Parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not
made; or
we have not received all the information and explanations we require
for our audit.
Under the Listing Rules we are required to review:
the Directors’ statement contained within the Directors’ Report
in relation to going concern; and
the part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the 2006 June 2008
Combined Code specified for our review.
Edward Hanson (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
16 March 2010
Consolidated statement of comprehensive income
for the year ended 31 December 2009
Continuing operations
Revenue
Cost of sales
Gross profit
Sales and marketing costs
General and administrative expenses
Research and development costs
Other operating expenses (net)
Total operating expenses
Adjusted operating profit
Exceptional items :
– Revision to estimates for chargebacks, returns and rebates
– Acquisition integration costs
Intangible amortisation*
Operating profit
Finance income
Finance expense
Other (expense)/income
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Earnings per share (cents)
Basic
Diluted
Cumulative effect of change in fair value of available for sale investments
Cumulative effect of change in fair value of financial derivatives
Exchange difference on translation of foreign operations
Total comprehensive income for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
* Intangible amortisation comprises the amortisation on intangible assets other than software.
77
Notes
2009
$000’s
2008
$000’s
4
4
4
636,884
580,656
(332,459)
(324,174)
304,425
256,482
(98,083)
(90,560)
(66,677)
(56,853)
(16,843)
(22,172)
8
(15,529)
(6,215)
(197,132)
(175,800)
114,742
94,326
5
5
5
4
9
–
–
(7,449)
(4,800)
(1,629)
(7,215)
107,293
80,682
514
817
10
(12,827)
(17,545)
11
6
32
13
13
(193)
80
94,787
64,034
(15,469)
(6,915)
79,318
57,119
1,635
77,683
79,318
(6)
57,125
57,119
40.9
40.1
2
(202)
30.4
29.6
(216)
(78)
1,364
(15,454)
80,482
41,371
1,586
78,896
80,482
(6)
41,377
41,371
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Hikma Pharmaceuticals PLC Annual report 2009
Consolidated balance sheet
at 31 December 2009
Non-current assets
Intangible assets
Property, plant and equipment
Interest in joint venture
Deferred tax assets
Available for sale investments
Financial and other non-current assets
Current assets
Inventories
Trade and other receivables
Collateralised cash
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Bank overdrafts and loans
Obligations under finance leases
Trade and other payables
Income tax provision
Other provisions
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Deferred income
Obligations under finance leases
Deferred tax liabilities
Total liabilities
Net assets
Notes
2009
$000’s
2008
$000’s
14
15
16
17
18
19
20
21
22
23
24
28
25
26
255,696
258,228
283,371
271,650
5,451
5,453
18,793
13,305
542
2,270
540
2,077
566,123
551,253
160,509
154,756
226,841
195,843
2,334
819
65,663
62,727
1,251
1,061
456,598
415,206
1,022,721
966,459
60,317
117,300
1,826
107,618
14,857
6,153
1,221
82,003
12,016
5,392
13,671
10,502
204,442
228,434
252,156
186,772
27
116,119
110,414
28
17
494
6,675
695
5,496
11,734
12,425
135,022
129,030
339,464
357,464
683,257
608,995
Consolidated balance sheet – continued
at 31 December 2009
Equity
Share capital
Share premium
Own shares
Other reserves
Equity attributable to equity holders of the Parent
Non-controlling interest
Total equity
79
Notes
2009
$000’s
2008
$000’s
31
34,236
33,857
272,785
269,973
33
(2,203)
(1,124)
371,067
300,503
675,885
603,209
32
7,372
5,786
683,257
608,995
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed on its
behalf by:
Said Darwazah
Chief Executive Officer
Mazen Darwazah
Executive Vice Chairman, CEO MENA
16 March 2010
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Hikma Pharmaceuticals PLC Annual report 2009
Consolidated statement of changes in equity
for the year ended 31 December 2009
Merger
reserve
$000’s
Revaluation
reserves
$000’s
Translation
reserves
$000’s
Retained
earnings
$000’s
Total
reserves
$000’s
Share
capital
$000’s
Share
premium
$000’s
Own
shares
$000’s
Balance at 1 January 2008
33,920
4,627 19,792 215,853 274,192 30,229 114,059
–
–
–
(180)
–
57,125
57,125
–
(216)
(216)
–
–
(78)
(78)
180
–
– (15,454)
– (15,454)
(180) (15,454) 57,011
41,377
–
–
–
–
–
–
–
–
–
–
–
–
3,628 155,914
Total equity
attributable to
equity
shareholders
of parent
$000’s
Non-
controlling
interest
$000’s
Total
equity
$000’s
418,480
6,177 424,657
57,125
(6) 57,119
(216)
–
(216)
(78)
–
–
(78)
–
(15,454)
–
(15,454)
41,377
(6) 41,371
159,542
– 159,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,384
3,384
–
(4,299)
(4,299)
–
(14,151)
(14,151)
–
–
–
–
–
–
–
–
–
(1,124)
(1,124)
–
(1,124)
–
–
–
–
–
3,384
–
3,384
–
–
–
(4,299)
–
(4,299)
(14,151)
–
(14,151)
–
(385)
(385)
33,920
4,447
4,338 257,798 300,503
33,857 269,973
(1,124)
603,209
5,786 608,995
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(181)
–
77,683
77,683
–
–
–
2
2
(202)
(202)
181
–
–
1,413
–
1,413
(181)
1,413 77,664
78,896
–
–
–
–
–
–
–
–
–
–
–
–
4,616
4,616
–
3,170
3,170
–
(16,118)
(16,118)
–
–
–
–
–
–
–
–
–
–
–
–
379
2,812
–
77,683
1,635 79,318
–
–
–
–
–
–
2
(202)
–
–
–
–
2
(202)
–
1,413
(49)
1,364
78,896
1,586 80,482
3,191
–
–
3,191
(1,079)
–
–
–
–
–
(1,079)
(1,079)
–
–
–
–
4,616
–
4,616
–
–
3,170
–
3,170
(16,118)
–
(16,118)
–
–
–
–
–
–
–
–
–
–
–
–
Profit/(loss) for the year
Cumulative effect of change in fair
value of available for sale investments
Cumulative effect of change in
fair value of financial derivatives
Realisation of revaluation reserve
Currency translation loss
Total comprehensive
income for the year
Issue of equity shares
Acquisition of own shares
Cost of equity settled
employee share scheme
Deferred tax arising on
share-based payments
Dividends on Ordinary Shares (Note 12)
Dividends paid to
minority shareholders
Balance at 31 December 2008
and 1 January 2009
Profit for the year
Cumulative effect of change in fair
value of available for sale investments
Cumulative effect of change in
fair value of financial derivatives
Realisation of revaluation reserve
Currency translation gain/(loss)
Total comprehensive
income for the year
Issue of equity shares
Acquisition of own shares
Cost of equity settled
employee share scheme
Current and deferred tax arising
on share-based payments
Dividends on Ordinary Shares (Note 12)
Balance at 31 December 2009
33,920
4,266
5,751 327,130 371,067
34,236 272,785
(2,203)
675,885
7,372 683,257
Consolidated cash flow statement
for the year ended 31 December 2009
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of intangible assets
Change in interest in joint venture
Investment in financial and other non current assets
Investment in available for sale investments (net)
Payments of prior year acquisition costs
Finance income
Net cash used in investing activities
Financing activities
(Increase)/decrease in collateralised cash
Increase in long-term financial debts
Repayment of long-term financial debts
Decrease in short-term borrowings
Increase/(decrease) in obligations under finance leases
Dividends paid
Dividends paid to non-controlling shareholders
Purchase of own shares
Interest paid
Proceeds from issue of new shares
Costs of issue of new shares
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange translation movements
Cash and cash equivalents at end of year
81
Notes
34
2009
$000’s
2008
$000’s
118,979
74,969
(35,170)
(56,205)
1,080
1,003
(5,213)
(9,313)
1,316
1,257
2
(193)
–
–
514
(910)
(787)
252
(2,234)
817
(37,664)
(66,120)
(1,515)
4,809
39,275
101,685
(33,570)
(48,933)
(56,983)
(159,237)
1,784
(436)
(16,118)
(14,151)
–
(385)
(1,079)
(1,124)
(13,461)
(17,097)
3,191
162,026
–
(2,484)
(78,476)
2,839
62,727
97
24,673
33,522
28,905
300
65,663
62,727
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements
1. Adoption of new and revised standards
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact
on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.
IAS 1 (revised 2007) Presentation of Financial statements
IAS 23 (revised 2007)
Borrowing Costs
Amendments to IAS 32
Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements – Puttable Financial Instruments
and Obligations Arising on Liquidation
Amendments to IAS 39
Financial Instruments: Recognition and Measurement –
Eligible Hedged Items
Embedded Derivatives (Amendments to IFRIC 9)
Reassessment of Embedded Derivatives and IAS 39
Financial Instruments: Recognition and Measurement
IFRS 8 Operating Segments
IAS 1 (2007) has introduced a number of changes in format and contents of the
financial statements.
The principal change to the Standard was to eliminate the option to expense all
borrowing costs when incurred. This change has had no impact on these financial
statements because it has always been the Group’s accounting policy to capitalise
borrowing costs incurred on qualifying assets.
The revisions to IAS 32 amend the criteria for debt/equity classification by permitting
certain puttable financial instruments and instruments (or components of instruments)
that impose on an entity an obligation to deliver to another party a pro-rate share of
the net assets of the entity only on liquidation, to be classified as equity, subject to
specified criteria being met.
The amendments provide clarification on two aspects of hedge accounting:
identifying inflation as a hedged risk or portion, and hedging with options.
The amendments clarify the accounting for embedded derivatives in the case of
a reclassification of a financial asset out of the “fair value through profit or loss”
(FVTPL) category as permitted by the October 2008 amendments to IAS 39
Financial Instruments: Recognition and Measurement (see above).
The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009.
IFRS 8 requires operating segments to be identified on the basis of internal reports
about components of the Group that are regularly reviewed by the Chief Executive
to allocate resources to segments and to assess their performance. In contrast, the
predecessor Standard (IAS 14 Segment Reporting) required the Group to identify
two sets of segments (business and geographical), using a risks and returns approach,
with the Group’s system of internal financial reporting to key management personnel
serving only as the starting point for the identification of such segments.
Improving Disclosures about Financial Instruments
(Amendments to IFRS 7 Financial Instruments: Disclosures)
The amendments to IFRS 7 expand the disclosures required in respect of fair
value measurements and liquidity risk.
Amendment to IFRS 2 Share-based Payment –
Vesting Conditions and Cancellations
Amendments to IAS 20 – Accounting for Government
Grants and Disclosure of Government Assistance
The amendments clarify the definition of vesting conditions for the purposes of
IFRS 2, introduce the concept of “non-vesting” conditions and clarify the accounting
treatment for cancellations.
IAS 20 has been amended to require that the benefit of a government loan at a
below-market rate of interest to be treated as a government grant. This accounting
treatment was not permitted prior to this amendment.
83
1. Adoption of new and revised standards continued
IFRIC 16 – Hedges of a Net Investment in a Foreign Operation
IFRIC 18 – Transfers of Assets from customers
The Interpretation provides guidance on the detailed requirements for net investment
hedging for certain hedge accounting designations.
The Interpretation addresses the accounting by recipients for transfers of property,
plant and equipment from “customers” and concludes what item of property, plant
and equipment transferred meets the definition of an asset from the perspective of
the recipient, the recipient should recognise the asset at its fair value on the date of
transfer, with the credit recognised in accordance with IAS 18 Revenue.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFRS 1 (amended)/IAS 27 (amended)
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
IFRS 2 (amended)
IFRS 3 (revised 2008)
IAS 24 (amended)
IAS 27 (revised 2008)
IAS 28 (revised 2008)
IAS 32 (amended)
IFRIC 17
IFRS 9
IFRIC 14
IFRIC 19
Improvements to IFRSs (April 2009)
Group cash-settled share based payment transactions
Business Combinations
Related Party Disclosures
Consolidated and Separate Financial Statements
Investments in Associates
Classification of Rights Issues
Distributions of Non-cash Assets to Owners
Financial Instruments
Prepayments of a minimum funding requirements
Extinguishing financial liabilities with equity instruments
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial
statements of the Group except for treatment of acquisition of subsidiaries and associates when IFRS 3 (revised 2008), IAS 27 (revised 2008) and
IAS 28 (revised 2008) come into effect for business combinations for which the acquisition date is on or after 1 January 2010.
2. Significant accounting policies
General Information
Hikma Pharmaceuticals PLC is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is
given on page 131.
Basis of accounting
Hikma Pharmaceuticals PLC’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs)
issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRSs adopted for
use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared under the
historical cost convention, except for the revaluation to market of certain financial assets and liabilities.
The Group’s previously published financial statements were also prepared in accordance with International Financial Reporting Standards.
The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company’s business is conducted
in US Dollars (USD).
The significant accounting policies are set out below.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated statements continued
2. Significant accounting policies continued
Basis of consolidation
The consolidated financial statements incorporate the results of Hikma Pharmaceuticals PLC (the “Company”) and entities controlled by the Company
(together the “Group”) and the Group’s share of the results and net assets of its associates. Control is achieved where the Company has the ability
to govern the financial and operating policies either directly or indirectly of an investee entity so as to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition.
Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Non-controlling interests
in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. The non-controlling interest is stated at the
minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the non-controlling interest in
excess of the non-controlling interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the
year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal,
as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with
those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of
the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination
over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s
interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination,
the excess is recognised immediately in the statement of comprehensive income.
The non-controlling interest in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in
preparing the financial statements (see page 60).
Investment in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation
in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in the financial statements using the equity method of accounting except
when classified as held for sale.
Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not control or joint control
over these policies.
Investment in joint venture
A joint venture is a contractual arrangement whereby the Group and a third party undertake an economic activity that is subject to joint control.
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating
decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).
Each venturer contributes cash or other resources to the jointly controlled entity. These contributions are included in the accounting records of
the venturer and recognised in its financial statements as an investment in the jointly controlled entity.
The Group recognises its interest in the joint venture using proportionate consolidation. The application of proportionate consolidation means that
the balance sheet of the Group includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible.
85
2. Significant accounting policies continued
Intangible assets
(a) Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets
and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment losses.
Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss
and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units. Cash-generating units to which goodwill
has been allocated are tested for impairment annually, or more frequent when there is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(b) Marketing rights are amortised over their useful lives commencing in the year in which the rights first generate sales.
(c) Customer relationships represent the value attributed to the long term relationships held with existing customers at the date of acquisition
and are amortised over their useful economic life.
(d) Product related intangibles
(i) product files and under-licenced products are assigned indefinite useful lives which are reviewed for impairment at least annually; and
(ii) Under licence agreements and product dossiers are amortised over their useful lives in the year of acquisition.
(e) Purchased software is amortised over the useful economic lives when the asset is available for use.
(f) In process research and development recognised on acquisition is amortised over the useful life in the year of acquisition.
(g) Trade name some trade names are assigned indefinite useful lives and others have finite useful lives over which they are amortised where
applicable, in the period from acquisition.
Foreign currencies
For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars,
the functional currency of Hikma Pharmaceuticals PLC and the presentational currency of the consolidated financial statements.
Transactions in currencies other than local currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance
sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are
not retranslated.
Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on non-monetary
assets and liabilities where the changes in fair value and the related foreign exchange are recognised directly in equity.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and
transferred to the Group’s translation reserve. Such cumulative translation differences are recognised as income or as expenses in the period in which
the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Revenue recognition
Revenue is recognised in the statement of comprehensive income when goods or services are supplied or made available to external customers against
orders received and when title and risk of loss has passed.
Revenue represents the amounts receivable after the deduction of discounts, value added tax, other sales taxes, and allowances given, provisions
for chargebacks and accruals for estimated future rebates and returns. The methodology and assumptions used to estimate rebates and returns are
monitored and adjusted regularly in light of contractual and historical information and past experience.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
Chargebacks
The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. In the USA the Group
sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Group also sells its
products indirectly to independent pharmacies, managed care organisations, hospitals, and Group purchasing organisations, collectively referred to as
“indirect customers”. The Group enters into agreements with its indirect customers to establish pricing for certain products. The indirect customers
then independently select a wholesaler from which they purchase the products at agreed-upon prices. The Group will provide credit to the wholesaler
for the difference between the agreed-upon price with the indirect customer and the wholesaler’s invoice price. This credit is called a chargeback.
The provision for chargebacks is based on historical sell-through levels by the Group’s wholesale customers to the indirect customers, and estimated
wholesaler inventory levels. As sales are made to the large wholesale customers, the Group continually monitors the reserve for chargebacks and
makes adjustments when it believes that actual chargebacks may differ from estimated reserves.
Returns and rebates
In certain countries and consistent with industry practice, the Group has a product return policy that allows selected customers to return the product
within a specified period prior to and subsequent to the expiration date, in exchange for a credit to be applied to future purchases.
The Group estimates its provision for returns and rebates based on historical experience, changes to business practices and credit terms.
While such experience has allowed for reasonable estimations in the past, history may not always be an accurate indicator of future returns.
The Group continually monitors the provisions for returns and rebates, and makes adjustments when it believes that actual product returns may
differ from established reserves.
Price adjustments
Price adjustments, also known as “shelf stock adjustments”, are credits issued to reflect decreases in the selling prices of the Group’s products that
customers have remaining in their inventories at the time of the price reduction. Decreases in selling prices are discretionary decisions made by Group
management to reflect competitive market conditions. Amounts recorded for estimated shelf stock adjustments are based upon specified terms with
direct customers, estimated declines in market prices and estimates of inventory held by customers. The Group regularly monitors these and other
factors and re-evaluates the reserve as additional information becomes available.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially
ready for their intended use or sale.
To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of interest
rate risk, the effective portion of the derivative is deferred in equity and released to profit or loss when the qualifying asset impacts profit or loss.
To the extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk,
the capitalised borrowing costs reflect the hedged interest rate.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from
the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Dividend income
Income from investments is recognised when the shareholders’ rights to receive payment have been established.
Leasing
Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term
of the operating lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over
the lease term.
Assets held under capital leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a capital lease
obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest
on the remaining balance of the liability.
87
2. Significant accounting policies continued
Government grants
Government grants relating to property, plant and equipment are treated as deferred income and released to the statement of comprehensive income
over the expected useful lives of the assets concerned.
Research and development
Research and development expenses are fully charged to the statement of comprehensive income, as the Group considers that the regulatory and
other uncertainties inherent in the development of its products generally mean that the recognition criteria in IAS 38 “Intangible assets” are not met.
Where, however the recognition criteria are met, intangible assets will be recognised and amortised over their useful economic life.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement
benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those
arising in a defined contribution retirement benefit scheme.
Tax
The Group provides for income tax according to the laws and regulations prevailing in the countries where the Group operates. Furthermore, the Group
computes and records deferred tax assets and liabilities according to IAS 12 “Income Taxes”.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive
income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax
is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Share-based payment transactions
Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services in
exchange for shares or rights over shares (“equity-settled transactions”).
Share-based payments
IFRS 2 “Share-based Payments” requires an expense to be recognised when the Group buys goods or services in exchange for share or rights over
shares (“share-based payments”) or in exchange for other equivalent assets.
The cost of share based payments’ transactions with employees is measured by reference to the fair value at the date at which the share based
payments are granted. The fair value of the equity settled stock options scheme is determined using a binomial model. The fair value of the long-term
incentive plan is determined using a Monte Carlo valuation model. The expected life used in the models has been adjusted, based on management’s
best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations (further details are given in note 36). In valuing
share based payments, no account is taken of any performance conditions, other than conditions linked to the market price of the shares of Hikma
Pharmaceuticals PLC.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
Share-based payments (continued)
The cost of share-based payments is recognised, together with a corresponding increase in equity, on a straight-line basis over the vesting period
based on the Group’s estimate of shares that will eventually vest. No expense is recognised for awards that do not ultimately vest. Where the terms
of a share-based payments award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense
is recognised for any increase in the value of the transaction as a result of the modification, as measured at the modification date. Where a share based
payments award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised
immediately. However, if a new award is substituted for a cancelled award, and designated as a replacement award on the date that it is granted, the
cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect
of outstanding share based payments is reflected as additional share dilution in the computation of diluted earnings per share.
Property, plant and equipment
Property, plant and equipment have been stated at cost on acquisition and are depreciated, except for land, on a straight-line basis at the following
depreciation rates:
Buildings
Vehicles
2% to 4%
10% to 20%
Fixtures & equipment
6% to 33%
Projects under construction are not depreciated until construction has been completed.
Any additional costs that extend the useful life of property, plant and equipment are capitalised. Property, plant and equipment which are financed
by leases giving Hikma Pharmaceuticals PLC substantially all the risks and rewards of ownership are capitalised at the lower of the fair value of the asset
and the present value of the minimum lease payments at the inception of the lease, and depreciated in the same manner as other property, plant and
equipment over the shorter of the lease term or their useful life. Whenever the recoverable amount of an asset is impaired, the carrying value is reduced
to the recoverable amount and the impairment loss is taken to the statement of comprehensive income. Projects under construction are carried at cost,
less any recognised impairment loss.
Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the statement of comprehensive income.
Inventories
Inventories are stated at the lower of cost and net realisable value. Purchased products are stated at acquisition cost and all other costs incurred in
bringing each product to its present location and condition. Cost of own-manufactured products comprises direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. In the balance
sheet, inventory is primarily valued at standard cost, which approximates to historical cost determined on a moving average basis, and this value is
used to determine the cost of sales in the statement of comprehensive income. Net realisable value represents the estimated selling price in the ordinary
course of business, less all estimated costs of completion and all estimated costs necessary to make the sale. Provisions are made for inventories with
net realisable value lower than cost or for slow moving inventory.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions
of the instrument.
Derivative financial instruments are used to manage the Group’s exposure to interest rate and foreign exchange risks. The principal derivative
instruments used by the Group are interest rate swaps and foreign exchange forward and option contracts. The Group does not hold or issue
derivative financial instruments for trading or speculative purposes.
Derivative financial instruments are initially recognised in the balance sheet at cost and then re-measured at subsequent reporting dates to fair
value. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument,
in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Hedging derivatives are classified on inception as fair value hedges, cash flow hedges or net investment hedges. Changes in the fair value of
derivatives designed as fair value hedges are recorded in the statement of comprehensive income, with the changes in the fair value of the hedged
asset or liability.
Changes in the fair value of derivatives designed as cash flow hedges are recognised in equity. Amounts deferred in equity are transferred to the
statement of comprehensive income in line with the hedged forecast transaction.
Hedges of net investments in foreign entities are accounted for in a similar way to cash flow hedges.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the statement
of comprehensive income.
89
2. Significant accounting policies continued
Investments Available for sale investments with quoted market prices are initially recognised at cost on acquisition and re-measured to their fair values
at year-end. Gains or losses on re-measurement to fair value are recognised in shareholders’ equity until the investments are sold, disposed of, or
determined to be impaired, at which time the cumulative gains or loss relating to these investments previously recognised in equity is included in the
statement of comprehensive income. Available for sale financial assets without market prices and the fair value of which cannot be reliably measured
are stated at cost, less a provision for any impairment loss, which is taken to the statement of comprehensive income.
The fair value of quoted financial assets represents the closing price in the financial markets at the date of the financial statements. However, the
fair value of unquoted financial assets, or those with no declared price are estimated by comparing the fair value of a similar financial instrument or
through a discounted cash flow method.
Accounts receivable Trade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are
recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial
recognition.
Cash and cash equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less and are subject
to an insignificant risk of changes in value.
Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis using the effective interest method and
are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables Trade payables are not interest-bearing and are stated at fair value.
Equity instruments Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources will be required to settle the obligations and a reliable estimate can be made of the amount of the obligation.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication
that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or income-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(income-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both
current and future periods.
The Group’s management believes that, among others, the following accounting policies that involve management judgements and estimates
are the most critical to understanding and evaluating the Group’s financial results.
Chargebacks
(see details above)
Revenue recognition
The Group’s revenue recognition policies require management to make a number of estimates, with the most significant relating to chargebacks,
product returns, rebates and price adjustments which vary by product arrangements and buying groups.
Accounts receivable and bad debts
The Group estimates, based on its historical experience, the level of debts that it believes will not be collected. Such estimates are made when collection
of the full amount of the debt is no longer probable. These estimates are based on a number of factors including specific customer issues and industry,
economic and political conditions. Bad debts are written-off when identified.
Goodwill and intangible assets
The critical areas of judgement in relation to goodwill and intangible assets are the useful economic lives of the product-related intangibles and the
growth rates used in the impairment tests for goodwill.
Contingent liabilities
The Group is involved in various legal proceedings considered typical to its business relating to employment, product liability and other commercial
disputes. Often this litigation is subject to substantial uncertainties, and therefore the probability of a loss, if any, being sustained or an estimate
of the amount of any loss, is difficult to ascertain. Consequently, it is often not practicable to make a reasonable estimate of the possible financial
effect, if any, that could arise from the ultimate resolution of legal proceedings. In such cases, where the Group believes that a disclosure is required,
information regarding the nature and facts of the case is disclosed. For current matters see Note 35. Although there can be no assurance regarding
the outcome of the disclosed legal proceeding, based on management’s current and considered view, the Group does not expect it to have a materially
adverse effect on our financial position. This position could change over time.
91
4. Segmental reporting
For management purposes, the Group is currently organised into three operating divisions – Generic, Branded and Injectables. These divisions are the
basis on which the Group reports its segment information.
The Group discloses underlying operating profit as the measure of segment result as this is the measure used in the decision-making and resource
allocation process of the chief operating decision maker, who is the Group’s Chief Executive Officer.
Information regarding the Group’s operating segments is reported below.
The following is an analysis of the Group’s revenue and results by reportable segment in 2009:
Year ended 31 December 2009
Revenue
Cost of sales
Gross profit
Result
Adjusted segment result
Intangible amortisation*
Segment result
Unallocated corporate expenses
Operating profit
Finance income
Finance expense
Other expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Branded
$000’s
Injectables
$000’s
Generic
$000’s
Others
$000’s
Group
$000’s
352,674
144,069
135,060
5,081
636,884
(165,066)
(81,162)
(82,524)
(3,707)
(332,459)
187,608
62,907
52,536
1,374
304,425
96,029
17,859
25,360
(2,345)
136,903
(4,580)
(2,526)
(343)
–
(7,449)
91,449
15,333
25,017
(2,345)
129,454
(22,161)
107,293
514
(12,827)
(193)
94,787
(15,469)
79,318
1,635
77,683
79,318
* Intangible amortisation comprises the amortisation on intangible assets other than software.
“Others” mainly comprise Arab Medical Containers Ltd and International Pharmaceutical Research Center Ltd and the Chemicals division of Hikma
Pharmaceuticals Ltd Jordan.
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees and donations.
Segment assets and liabilities 2009
Additions to property, plant and equipment (cost)
Additions to intangible assets
Branded
$000’s
23,827
1,889
Injectables
$000’s
9,594
2,591
Generic
$000’s
2,925
709
Corporate
and Others
$000’s
609
24
Group
$000’s
36,955
5,213
Total property, plant and equipment and intangible assets (net book value)
341,548
157,938
30,815
8,766
539,067
Depreciation
Amortisation (including software)
14,715
5,509
4,730
2,956
4,567
1,187
25,199
434
50
8,949
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Balance sheet
Total assets
Segment assets
Total liabilities
Segment liabilities
679,112
204,220
119,093
20,296
1,022,721
203,750
91,104
30,567
14,043
339,464
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
4. Segmental reporting continued
The following is an analysis of the Group’s revenue and results by reportable segment in 2008:
Year ended 31 December 2008
Revenue
Cost of sales
Gross profit
Result
Adjusted segment result
Exceptional items :
– Revision to estimates for chargebacks, returns and rebates
– Acquisition integration costs
Intangible amortisation*
Segment result
Unallocated corporate expenses
Operating profit
Finance income
Finance expense
Other income
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Branded
$000’s
Injectables
$000’s
Generic
$000’s
Others
$000’s
Group
$000’s
320,837
149,320
105,696
4,803
580,656
(148,023)
(85,942)
(86,385)
(3,824)
(324,174)
172,814
63,378
19,311
979
256,482
93,591
24,688
(839)
(3,738)
113,702
–
(1,629)
(4,478)
–
–
(2,587)
(4,800)
–
(150)
–
–
–
(4,800)
(1,629)
(7,215)
87,484
22,101
(5,789)
(3,738)
100,058
(19,376)
80,682
817
(17,545)
80
64,034
(6,915)
57,119
(6)
57,125
57,119
* Intangible amortisation comprises the amortisation on intangible assets other than software.
“Others” mainly comprise Arab Medical Containers Ltd and International Pharmaceutical Research Center Ltd and the Chemicals division of Hikma
Pharmaceuticals Ltd Jordan.
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees and donations.
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4. Segmental reporting continued
Segment assets and liabilities 2008
Additions to property, plant and equipment (cost)
Additions to intangible assets
Branded
$000’s
34,226
3,801
Injectables
$000’s
12,981
4,781
Generic
$000’s
8,037
463
Corporate
and Other
$000’s
1,427
1,601
Group
$000’s
56,671
10,646
Total property, plant and equipment and intangible assets (net book value)
336,839
150,282
32,185
10,572
529,878
Depreciation
Amortisation (including software)
Balance sheet
Total assets
Segment assets
Total liabilities
Segment liabilities
13,686
4,980
5,615
2,925
4,463
150
1,303
25,067
–
8,055
642,397
196,894
95,456
31,712
966,459
196,924
82,804
28,191
49,545
357,464
The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services:
Middle East and North Africa
Europe and Rest of the World
United States
United Kingdom
Sales revenue by
geographical market
for the year ended 31 December
2009
$000’s
2008
$000’s
404,689
365,922
78,981
82,999
152,406
130,606
808
1,129
636,884
580,656
The top selling markets are USA, Saudi Arabia and Algeria with total sales of USD 152.4 million (2008: USD 130.6 million), USD 107.2 million
(2008: USD 107.5 million) and USD 74.5 million (2008: USD 67.9 million), respectively.
Included in the Group’s total sales are sales of approximately USD 92.8 million (2008: USD 87.6 million) which arose from sales to the Group’s
largest client in Saudi Arabia.
The following is an analysis of the additions and total property, plant and equipment and intangible assets and an analysis of total assets by the
geographical area in which the assets are located:
Middle East and North Africa
Europe
United States
United Kingdom
Total non-current assets
excluding deferred tax assets
as at 31 December
Total assets
as at 31 December
2009
$000’s
2008
$000’s
2009
$000’s
2008
$000’s
357,945
353,997
690,170
657,901
157,938
150,876
205,758
198,766
30,944
32,377
119,093
503
698
7,700
95,456
14,336
547,330
537,948
1,022,721
966,459
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
5. Exceptional items and intangible amortisation
Exceptional items are disclosed separately in the statement of comprehensive income to assist in the understanding of the Group’s underlying
performance.
Revision to estimates for chargebacks, returns and rebates
Acquisition integration costs
Exceptional items
Intangible amortisation
Exceptional items and intangible amortisation*
Tax effect
Impact on profit for the year
*Intangible amortisation comprises the amortisation on intangible assets other than software.
For the years ended 31 December
2009
$000’s
–
–
–
(7,449)
2008
$000’s
(4,800)
(1,629)
(6,429)
(7,215)
(7,449)
(13,644)
1,531
3,408
(5,918)
(10,236)
Revision to estimates for chargebacks, returns and rebates represents a one-off charge taken against revenue during 2008.
Acquisition integration costs represent expenses incurred in integrating APM and Hikma Pharma SAE (Egypt) into the Group. These are included within
sales and marketing and general and administrative expenses.
6. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Net foreign exchange losses/(gains)
Research and development costs
Loss/(gain) on sale of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation of intangible assets (including software)
Inventories:
Cost of inventories recognised as an expense
Write-down of inventories
Staff costs (see Note 7)
Auditors’ remuneration (see below)
For the years ended 31 December
2009
$000’s
1,783
16,843
236
2008
$000’s
(1,012)
22,172
(6)
25,199
25,067
8,949
8,055
213,558
210,514
12,501
8,589
156,274
142,021
1,302
1,524
6. Profit for the year continued
A detailed analysis of the Group’s auditors’ remuneration on a worldwide basis is provided below:
Audit of the Company’s annual accounts
Audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit related service*
Total audit and audit related fees
– Tax compliance services
– Tax advisory services
– Transaction due diligence services
Total non-audit fees
Total fees
95
For the years ended 31 December
2009
$000’s
330
624
954
119
2008
$000’s
397
661
1,058
268
1,073
1,326
103
88
38
191
7
129
62
198
1,302
1,524
*These fees predominantly relate to review procedures in respect of the interim financial information.
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 57 to 59 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
7. Staff costs
The average monthly number of employees (including Executive Directors) was:
Production
Selling and marketing
Research and development
General and administrative
Their aggregate remuneration comprised:
Wages, salaries and bonuses
Social security costs
Post employment benefits
End of service indemnity
Share-based payments
Car and housing allowance
Other costs and employee benefits
*The 2008 comparatives have been restated. The net impact on the balance sheet and the statement of comprehensive income is nil.
For the years ended 31 December
2009
Number
2,689
1,567
141
483
2008
Number
2,554
1,254
176
647
4,880
4,631
For the years ended 31 December
2009
$000’s
*
2008
$000’s
110,779
102,414
9,278
2,187
2,982
4,616
12,075
14,357
7,977
1,944
4,007
3,384
9,798
12,497
156,274
142,021
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
8. Other operating expenses (net)
Other operating expense
Other operating income
For the years ended 31 December
2009
$000’s
(18,583)
3,054
(15,529)
2008
$000’s
(9,903)
3,688
(6,215)
Other operating expenses consist mainly of the increase in provisions against slow moving inventory items, abnormal spoilage and trading foreign
losses. Other operating income consists mainly of gain on sale of intangible assets.
9. Finance income
Interest income
10. Finance expense
Interest on bank overdrafts and loans
Interest on obligations under finance leases
Other bank charges
Net foreign exchange loss
11. Tax
Current tax:
UK current tax
Double tax relief
Foreign tax
Prior year adjustments
Deferred tax (Note 17)
For the years ended 31 December
2009
$000’s
514
2008
$000’s
817
For the years ended 31 December
2009
$000’s
2008
$000’s
7,367
13,320
197
5,263
–
340
3,652
233
12,827
17,545
For the years ended 31 December
2009
$000’s
2008*
$000’s
560
10,830
(560)
(10,830)
19,988
9,268
1,035
76
(5,554)
(2,429)
15,469
6,915
*The 2008 comparatives have been restated in relation to the amount of UK current tax and double tax relief. The net impact on the balance sheet and the statement of comprehensive income is nil.
UK corporation tax is calculated at 28% (2008: 28.5%) of the estimated assessable profit made in the UK for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
11. Tax continued
The charge for the year can be reconciled to profit before tax per the statement of comprehensive income as follows:
Profit before tax:
Tax at the UK corporation tax rate of 28% ( 2008: 28.5% )
Profits taxed at different rates
UK tax on dividend income
Double tax relief offset
Permanent differences
Losses for which no benefit is recognised
Prior year adjustments
Tax expense for the year
97
For the years ended 31 December
2009
$000’s
94,787
26,540
2008*
$000’s
64,034
18,250
(15,776)
(15,089)
560
10,830
(560)
(10,830)
3,643
2,886
27
1,035
15,469
792
76
6,915
*The 2008 comparatives have been restated in relation to the amount of UK current tax and double tax relief. The net impact on the balance sheet and the statement of comprehensive income is nil.
12. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2008 of 4.0 cents (2007: 4.0 cents) per share
Interim dividend for the year ended 31 December 2009 of 4.5 cents (2008: 3.5 cents) per share
2009
$000’s
2008
$000’s
7,575
8,543
7,542
6,609
16,118
14,151
The proposed final dividend for the year ended 31 December 2009 is 6.5 cents (2008: 4.0 cents) per share, bringing the total dividends for the year
to 11.0 cents (2008: 7.5 cents) per share.
13. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings for the purposes of basic and diluted earnings per share being net profit
attributable to equity holders of the parent
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
Effect of dilutive potential Ordinary Shares:
Share options
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
Basic
Diluted
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For the years ended 31 December
2009
$000’s
2008
$000’s
77,683
57,125
Number
‘000
Number
‘000
189,757
187,876
3,968
5,295
193,725
193,171
2009
Earnings
per share
cents
40.9
40.1
2008
Earnings
per share
cents
30.4
29.6
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
14. Intangible assets
Cost
Goodwill
$000’s
Marketing
rights
$000’s
Customer
relationships
$000’s
Product
related
intangibles
$000’s
In process
R&D
$000’s
Trade names
$000’s
Other
acquisition
related
intangibles
$000’s
Software
$000’s
Total
$000’s
Balance at 1 January 2008
157,192
5,412
65,369
20,005
4,609
6,393
3,289
5,201
267,470
Additions
Reclassification
Disposals
–
–
–
2,660
(1,114)
–
–
–
–
Translation adjustments
(1,997)
(209)
(938)
1,987
990
(305)
(283)
–
–
(129)
15
124
–
44
5,940
10,646
–
–
–
–
–
(434)
(10)
(249)
(138)
(185)
(4,009)
Balance at 1 January 2009
155,195
6,749
64,431
22,394
4,470
6,283
3,195
10,956
273,673
Additions
Disposals
Translation adjustments
–
–
871
2,153
(194)
118
–
–
1,094
–
373
258
–
(200)
6
19
–
99
10
1,937
5,213
–
9
(18)
27
(412)
1,761
Balance at 31 December 2009
156,066
8,826
64,804
23,746
4,276
6,401
3,214
12,902
280,235
Amortisation
Balance at 1 January 2008
(608)
Charge for the year
Reclassification
Disposals
Translation adjustments
–
–
–
–
(592)
(704)
(11)
–
42
(1,604)
(686)
–
(4,383)
(1,600)
(304)
253
(212)
–
70
10
78
Balance at 1 January 2009
(608)
(1,265)
(5,664)
(2,410)
Charge for the year
Translation adjustments
–
–
(1,105)
(4,294)
(1,540)
(32)
(56)
(27)
–
(19)
–
–
–
(19)
(19)
–
(365)
(205)
(3,774)
(7,629)
(840)
(8,055)
–
–
2
(568)
(194)
(11)
(30)
–
36
–
10
229
(4,608)
(15,445)
(1,500)
(8,949)
(18)
(145)
–
–
1
(303)
(297)
(1)
Balance at 31 December 2009
(608)
(2,402)
(10,014)
(3,977)
(601)
(38)
(773)
(6,126)
(24,539)
Carrying amount
At 31 December 2009
155,458
6,424
54,790
19,769
At 31 December 2008
154,587
5,484
58,767
19,984
3,675
4,167
6,363
6,264
2,441
2,627
6,776
255,696
6,348
258,228
99
14. Intangible assets continued
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that
business combination. The carrying amount of goodwill had been allocated as follows:
Branded
Arab Pharmaceuticals Manufacturing Co.
Al Jazeera Pharmaceutical Industries Ltd
Hikma Pharma SAE (Egypt)
Injectables
German operations
Hikma Italia S.p.A
Others
Arab Medical Containers
IPRC and STD
Total
2009
$000’s
2008
$000’s
74,399
74,399
6,752
6,752
34,877
34,680
116,028
115,831
37,787
37,162
806
757
38,593
37,919
742
95
837
742
95
837
155,458
154,587
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The value in use calculations are based on the budget for the
following year, grown at 2% in perpetuity. The key assumptions for the value in use calculations are those regarding the discount rates and short-term
growth forecast in budgets.
Management estimates discount rates using WACC rates that reflect the current market assessments of the time value of money and the risks
specific to the CGUs. The discount rates used varied between 8.4% and 13.4%. The short-term growth rates range from 17% to 78%.
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value. In each case the valuations indicate sufficient
headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
14. Intangible assets continued
Other intangible assets
Amortisation of all intangibles assets with finite useful lives is charged on a straight-line basis.
Marketing rights Marketing rights are amortised over their useful lives commencing on the year in which the rights first generate sales.
Product related intangibles Product related intangibles include three types:
a. Product files and under-licensed products The product files and under-licence products intangibles are assessed as having indefinite useful life due
to the expected longevity of the products with an indefinite useful life. These assets are being reviewed for impairment at least annually. The carrying
value of these assets is USD 5,837,000 (2008: USD 5,837,000).
b. Under-licence agreements Under-licence agreements have an average estimated useful life of 11 years (2008: 11 years).
c. Product dossiers Product dossiers have an average estimated useful life of 15 years (2008: 15 years).
Customer relationships Customer relationships represent the value attributed to the existing direct customers that the Company acquired on the
acquisition of subsidiaries. The customer relationships have an average estimated useful life of 15 years (2008: 15 years).
In process R&D In process R&D represents the pipeline of products under development that were recognised on the acquisition of Arab
Pharmaceutical Manufacturing Company and Alkan Pharma SAE. The In process R&D has an average estimated useful life of 15 years (2008: 15 years).
Trade name Trade names were recognised on the acquisition of Ribosepharm and Arab Pharmaceutical Manufacturing Company.
The trade name recognised on the acquisition of Ribosepharm is expected to have an indefinite economic useful life due to its expected longevity.
The carrying value of Ribosepharm’s trade name is USD 6,003,000 (2008: USD 5,904,000), the movement has arisen due to retranslation. The trade name
recognised on the acquisition of Arab Pharmaceutical Manufacturing Company has an estimated useful life of 12 years (2008: 12 years).
Software Software intangibles mainly represent the Enterprise Resource Planning solution that is being implemented in different operations across the
Group. The software has an average estimated useful life of five years.
Other acquisition related intangibles This mainly represents intangible assets recognised on the acquisition of Thymoorgan which relate to its
specialist manufacturing capabilities. The estimated useful lives vary from 10 years to indefinite useful life. The carrying value of assets with indefinite
lives is USD 1,075,000 (2008: USD 1,075,000), the movement has arisen due to retranslation.
101
15. Property, plant and equipment
Cost
Land and
buildings
$000’s
Vehicles
$000’s
Machinery and
equipment
$000’s
Fixtures and
equipment
$000’s
Projects under
construction
$000’s
Total
$000’s
Balance at 1 January 2008
131,020
9,217
166,198
30,497
20,287
357,219
Additions
Disposals
Transfers
Translation adjustment
Balance at 1 January 2009
Additions
Disposals
Transfers
Translation adjustment
Balance at 31 December 2009
Accumulated depreciation
Balance at 1 January 2008
Charge for the year
Disposals and transfers
Translation adjustment
Balance at 1 January 2009
Charge for the year
Disposals and transfers
Translation adjustment
4,731
1,689
9,783
6,531
33,937
56,671
(68)
(671)
(4,213)
(2,079)
(991)
(8,022)
4,854
(2,040)
32
2,922
(128)
(2,705)
113
(426)
(7,921)
–
(776)
(6,075)
138,497
10,139
171,985
34,636
44,536
399,793
2,141
1,392
(122)
13,779
510
(646)
192
(19)
9,608
(2,192)
9,998
778
3,307
20,507
36,955
(740)
(611)
(4,311)
1,240
(25,209)
–
113
427
1,809
154,805
11,058
190,177
38,556
39,650
434,246
19,040
3,583
73,832
14,108
4,058
1,456
15,270
4,283
485
(438)
(431)
(66)
(5,448)
(1,061)
(282)
(246)
23,145
4,542
82,593
17,863
4,510
1,603
14,712
4,374
(55)
140
(314)
(2,393)
(6)
354
(274)
81
–
–
–
–
–
–
–
–
–
110,563
25,067
(5,676)
(1,811)
128,143
25,199
(3,036)
569
150,875
Balance at 31 December 2009
27,740
5,825
95,266
22,044
Carrying amount
At 31 December 2009
Carrying amount
At 31 December 2008
127,065
5,233
94,911
16,512
39,650
283,371
115,352
5,597
89,392
16,773
44,536
271,650
The net book value of the Group’s machinery and equipment includes an amount of USD 12,743,000 (2008: USD 6,028,000) in respect of assets held
under finance lease.
As at 31 December 2009 the Group had pledged property, plant and equipment having a carrying value of USD 79,557,000 (2008: USD 87,289,000)
as collateral for various long-term loans. This amount includes both specific items around the Group and the net property, plant and equipment of the
Group’s businesses in Portugal, Saudi Arabia and US.
In 1994, the Portuguese Government granted Hikma Farmaceutica an amount of Euro 1,600,000 to build the company’s factory in accordance
with the SINPEDIP program. In 2008, the German Government provided Thymoorgan Pharmazie GmbH a grant of Euro 560,000 being a contribution
towards the acquisition of two freeze dryers and additional equipment. The carrying value of the grants as of 31 December 2009 were USD 40,000
(2008: USD 153,000) for Hikma Farmaceutica and USD 454,000 (2008: 542,000) for Thymoorgan Pharmazie GmbH.
During the year 2009, the Group entered into contractual commitments for the acquisition of property, plant and equipment amounting to
USD 776,000 (2008: USD 7,412,000).
The amount of borrowing costs that have been capitalised in the year within the projects under construction is USD 422,000 (2008: USD 426,000).
The average capitalisation rate used ranges between 2.9%–12.1% (2008: 2.0%–3.9%).
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
16. Interest in joint venture
APM was acquired by the Group on 27 December 2007. During 2005, APM entered in a 50% joint venture agreement with another Jordanian
company to establish a new manufacturing plant in Algeria (Al Dar Al Arabia Pharmaceutical Manufacturing Company). APM’s share of the joint
venture as at 31 December 2009 is USD 5,451,000 (2008: USD 5,453,000), being the amount paid at the balance sheet date to finance the
construction of the plant.
17. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting year.
At 1 January 2008
Charge/(credit) to income
Charge to equity
Adjustments
Exchange differences
At 1 January 2009
Charge/(credit) to income
Credit to equity
Adjustments
Exchange differences
At 31 December 2009
Deferred
R&D costs
$000’s
Other
short-term
temporary
differences
$000’s
Amortisable
assets
$000’s
Fixed assets
$000’s
Stock options
$000’s
Total
$000’s
(275)
(4,273)
6,997
3,010
(6,570)
(2,794)
–
–
(33)
13
(4,658)
407
–
(365)
1
–
38
38
(295)
(9,295)
7,480
(6,652)
(39)
–
–
–
(5)
–
–
(2)
–
–
110
50
365
–
571
(89)
3,857
2,836
–
–
–
4,299
(244)
–
(2,515)
(1,083)
(1,233)
509
–
(2,429)
4,299
79
(35)
(880)
(5,554)
(1,233)
474
134
Tax losses
$000’s
(1,683)
1,457
–
112
2
(112)
(616)
–
(35)
(19)
(782)
(300)
(15,949)
7,551
6,743
(4,322)
(7,059)
Certain deferred tax assets and liabilities have been appropriately offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
2009
$000’s
2008
$000’s
11,734
12,425
(18,793)
(13,305)
(7,059)
(880)
No deferred tax asset has been recognised on tax losses totalling USD 3,873,000 (2008: USD 6,647,000) due to the unpredictability of the related
future profit streams. These losses may be carried forward for four years before expiry.
No deferred tax liability is recognised on temporary differences of USD 30 million (2008: USD 246 million) relating to the unremitted earnings of
overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse
in the foreseeable future. The temporary differences at 31 December 2009 are significantly reduced from the previous year as a result of a change to
UK tax legislation which largely exempts from UK tax overseas dividends received on or after 1 July 2009. The temporary differences at 31 December
2009 represent only the unremitted earnings of those overseas subsidiaries where remittance of those earnings may still result in a tax liability,
principally as a result of dividend withholding taxes levied by the overseas tax jurisdictions in which these subsidiaries operate.
103
18. Available for sale investments
Available for sale investments represents investments in listed equity securities and unlisted securities that are recorded at the fair value based on either
quoted market price for similar listed companies or using other valuation methods for unlisted companies.
1 January
Additions
Disposals
Fair value adjustments recognised in equity
31 December
Non Listed*
$000’s
290
–
–
7
2009
Total
$000’s
540
–
–
2
297
542
Listed
$000’s
250
–
–
(5)
245
Listed
$000’s
866
–
(410)
(206)
250
Non Listed*
$000’s
142
158
–
(10)
290
2008
Total
$000’s
1,008
158
(410)
(216)
540
* Included in this amount is an investment in a non-listed US company (MENA Innovative Technologies Inc.) of USD 62,000 (2008: USD 62,000) that represents 32.5% (2008: 32.5%) of its common share capital
(see Note 38). The Group does not exert significant influence over this entity.
19. Financial and other non-current assets
Investments recorded at cost
Amounts due from investments
Amounts due from related parties recorded at cost
Other financial assets
As at 31 December
2009
$000’s
485
726
491
568
2008
$000’s
485
490
474
628
2,270
2,077
Investments recorded at cost represent the Group’s share of 32% (2008: 32%) in Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia
over which the Group does not exert significant influence.
This company owns another Tunisian company (Societe Hikma Medicef Limited-Tunisia), which is therefore a related party. Amounts due from
investments recorded at cost consist of amounts due from the same Tunisian investment (see Note 38).
20. Inventories
Finished goods
Work-in-progress
Raw and packing materials
Goods in transit
As at 31 December
2009
$000’s
41,453
28,074
79,040
11,942
2008
$000’s
45,585
23,609
71,733
13,829
160,509
154,756
Goods in transit include inventory held at third parties whilst in transit between Group companies.
Provision for slow moving inventory
8,553
12,818
(7,359)
(20)
13,992
The total expense in the income statement for the write-off of inventory including provision for such write offs was USD 12,501,000
(2008: USD 8,589,000).
As at
31 December
2008
$000’s
Additions
$000’s
Utilisation
$000’s
Translation
adjustments
$000’s
As at
31 December
2009
$000’s
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
21. Trade and other receivables
Trade receivables
Prepayments
Value added tax recoverable
Interest receivable
Employee advances
As at 31 December
2009
$000’s
2008
$000’s
203,250
173,958
16,063
14,345
5,569
49
1,910
5,306
108
2,126
226,841
195,843
Trade receivables are stated net of provisions for chargebacks, doubtful debts and expired goods as follows:
Chargebacks and returns
Doubtful debts
Expired goods
As at
31 December
2008
$000’s
Additions
$000’s
Utilisation
$000’s
Translation
adjustments
$000’s
As at
31 December
2009
$000’s
24,903
208,263
(195,104)
15,151
6,629
4,699
3,598
(83)
(3,554)
46,683
216,560
(198,741)
40
(9)
17
48
38,102
19,758
6,690
64,550
The following table sets forth a summary of the age of trade receivables:
Not past
due on the
reporting date
$000’s
less than
90 days
$000’s
between
91 and
180 days
$000’s
between
181 and
360 days
$000’s
Past due
Over
one year
$000’s
Impaired
$000’s
Total
$000’s
At 31 December 2009
Total trade receivables as of 31 December 2009
212,063
23,437
6,181
3,223
3,138
19,758
267,800
Related allowance for doubtful debts
–
–
–
–
–
(19,758)
(19,758)
212,063
23,437
6,181
3,223
3,138
–
248,042
Chargebacks and returns provision
Expired goods provision
Net receivables
(38,102)
(6,690)
203,250
Not past
due on the
reporting date
$000’s
less than
90 days
$000’s
between
91 and
180 days
$000’s
between
181 and
360 days
$000’s
Past due
Over
one year
$000’s
Impaired
$000’s
Total
$000’s
At 31 December 2008
Total trade receivables as of 31 December 2008
155,818
31,272
11,396
5,744
1,260
15,151
220,641
Related allowance for doubtful debts
–
–
–
–
–
(15,151)
(15,151)
155,818
31,272
11,396
5,744
1,260
–
205,490
Chargebacks and returns provision
Expired goods provision
Net receivables
(24,903)
(6,629)
173,958
The Group establishes an allowance for impairment that represents its estimate of losses in respect of specific trade and other receivables where
it is deemed that a receivable may not be recoverable. When the receivable is deemed irrecoverable, the allowance account is written off against
the underlying receivable.
More details on the Group’s policy for credit and concentration of risk management are provided in Note 29.
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22. Collateralised cash
Collateralised cash represents mainly an amount equal to 100% of a portion of bank facilities granted to the Group’s Egyptian and Algerian operations
of USD 2,334,000 (2008: Egyptian and Jordanian operations of USD 819,000).
23. Cash and cash equivalents
Cash at banks and on hand
Time deposits
Money market deposits
Cash and cash equivalents include highly liquid investments with maturities of three months or less.
24. Bank overdrafts and loans
Bank overdrafts
Import and export financing
Short-term loans
Current portion of long-term loans (Note 27)
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
Import and export financing represents short-term financing for the ordinary trading activities of the business.
25. Trade and other payables
Trade payables
Accrued expenses
Employees’ provident fund*
VAT and sales tax payables
Dividends payable**
Social security withholdings
Income tax withholdings
Other payables
As at 31 December
2009
$000’s
52,107
13,452
104
2008
$000’s
21,374
41,251
102
65,663
62,727
As at 31 December
2009
$000’s
15,924
10,831
2,323
31,239
2008
$000’s
20,244
29,398
42,272
25,386
60,317
117,300
2009
%
3.65
3.64
2008
%
6.00
3.85
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As at 31 December
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$000’s
57,307
35,602
4,049
3,033
2,348
856
1,456
2,967
2008
$000’s
42,632
29,823
2,753
1,408
2,495
745
1,037
1,110
107,618
82,003
*The employees’ provident fund liability mainly represents the outstanding contributions due to the Hikma Pharmaceuticals Limited – Jordan retirement benefit plan, on which the fund receives 5% interest.
**Dividends payable includes USD 2,165,000 (2008: USD 2,303,000) due to the previous shareholders of APM.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
26. Other provisions
Other provisions represent the end of service indemnity provisions of Hikma Pharmaceuticals Limited – Jordan, Hikma Italia, JPI, AMC, APM, Hikma
Pharma Co. (Tunisia) and Pharma Ixir Co. Ltd (Sudan). This end of service indemnity comprises one month’s salary payable for each year employed
for each employee in all the above companies except Hikma Italia.
The provision for end of service indemnity for Hikma Italia is calculated (as required by Italian law) by dividing the employees’ remuneration
for the year by 13.5 and it is subject to revaluation on an annual basis.
Movements on the provision for end of service indemnity:
1 January
Additions
Utilisation
Translation adjustments
31 December
27. Long-term financial debts
Total loans
Less: current portion of loans (Note 24)
Long-term financial loans
Breakdown by maturity:
Within one year
In the second year
In third year
In the fourth year
In the fifth year
Thereafter
Breakdown by currency:
USD
Euro
Jordanian Dinar
Algerian Dinar
Saudi Riyal
Egyptian Pound
2009
$000’s
5,392
2,365
(1,611)
7
2008
$000’s
4,475
1,592
(625)
(50)
6,153
5,392
As at 31 December
2009
$000’s
2008
$000’s
147,358
135,800
(31,239)
(25,386)
116,119
110,414
31,239
49,476
30,587
24,701
4,623
6,732
25,386
41,023
22,705
20,896
15,261
10,529
147,358
135,800
99,739
30,240
103
81,287
32,345
2,666
11,699
11,960
3,125
2,452
6,242
1,300
147,358
135,800
The loans are shown on an undiscounted basis.
At 31 December 2009, import and export financing, short-term loans and the current and long-term portion of long-term loans total
USD 160,512,000 (2008: USD 207,470,000).
Loans amounting to USD 45,707,000 (2008: USD 42,872,000) are secured on property, plant and equipment.
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28. Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: Interest lease charges
Present value of minimum lease payments payable
Minimum lease
payments
Present value of minimum
lease payments
2009
$000’s
2008
$000’s
2009
$000’s
2008
$000’s
2,274
7,473
9,747
(1,246)
8,501
1,512
6,173
7,685
(968)
6,717
1,826
6,675
8,501
1,221
5,496
6,717
It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is four years (2008: five years).
For the year ended 31 December 2009, the average effective borrowings rate was between 1.8% and 7.0% (2008: between 3.9% and 7.0%).
29. Financial policies for risk management and their objectives
Credit and concentration of risk
The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, and investments.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for
doubtful debts, chargebacks in the US, expired goods and without recourse discounts. A provision for impairment is made where there is an identified
loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned
by international credit-rating agencies.
In line with local market practice, clients in the MENA region are offered relatively longer payment terms compared to clients in Europe and the US.
During the year ended 31 December 2009, the Group’s largest three clients in the MENA region represented 21% of Group Turnover, 15% in Saudi
Arabia and two customers in Algeria making up 4% and 2% each. The amount of receivables due from customers based in the Algerian market at
31 December 2009 is USD 32,016,596 (2008: USD 32,784,000) and Saudi Arabia is USD 53,373,000 (2008: USD 44,366,000). The Group manages
this risk through the implementation of stringent credit policies and procedures and certain credit insurance agreements.
Trade receivable exposures are managed locally in the operating units where they arise. Credit limits are set as deemed appropriate for the customer,
based on a number of qualitative and quantitative factors related to the creditworthiness of a particular customer. The Group is exposed to a variety
of customers ranging from government backed agencies and large private wholesalers to privately owned pharmacies, and the underlying local
economic risks vary across the Group. Typical credit terms in the US range from 30–60 days, in Europe 60–120 days, and MENA 180–360 days.
Where appropriate, the Group endeavours to minimise risks by the use of trade finance instruments such as letters of credit and insurance.
Market risk
The Group’s objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flow associated with changes in interest
rates and foreign currency rates. The Group is exposed to foreign exchange and interest rate risk. Management actively monitors these exposures to
manage the volatility relating to these exposures by entering into a variety of derivative financial instruments.
Foreign exchange risk
The Group uses the USD as its functional currency and is therefore exposed to foreign exchange movements primarily in the Euro and Algerian Dinar.
Consequently, where possible the Group enters into various contracts, which change in value as foreign exchange rates change to hedge against the
risk of movement in foreign denominated assets and liabilities.
Interest rate risk
The Group manages its exposures to interest rate risks by changing the proportion of debt that is fixed by entering into interest rate swap agreements.
Using these derivative financial instruments has not had a material impact on the Group’s financial position at 31 December 2009 or the Group’s results
of operations for the year then ended.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
29. Financial policies for risk management and their objectives continued
As at 31 December 2009
As at 31 December 2008
Fixed rate
$000’s
Floating rate
$000’s
Total
$000’s
Fixed rate
$000’s
Floating rate
$000’s
Total
$000’s
Financial liabilities
Interest bearing loans and borrowings
40,444
144,493
184,937
31,670
202,761
234,431
Financial assets
Cash and cash equivalents
–
65,663
65,663
–
62,727
62,727
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December
2009, with all other variables held constant. Based on the composition of our debt portfolio as at 31 December 2009, a 1% increase/decrease in
interest rates would result in an additional USD 1.4 million (2008: USD 2.0 million) in interest expense/income being incurred per year.
Fair value of financial assets and liabilities
The fair value of financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair value:
Cash and cash equivalents – approximates to the carrying amount;
Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments;
Long-term loans – approximates to the carrying amount in the case of floating rate bank loans and other loans;
Forward exchange contracts – based on market prices and exchange rates at the balance sheet date;
Receivables and payables – approximates to the carrying amount; and
Lease obligations – approximates to the carrying value.
Management considers that the book value of the Group’s financial assets and liabilities does not materially differ from their fair value.
Currency risk
Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is other than the functional currency
of the booking entity and being of a monetary nature.
The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:
USD/EUR
USD/Sudanese Pound
USD/Algerian Dinar
USD/Saudi Riyal
USD/British Pound
USD/Jordanian Dinar
USD/Egyptian Pound
Period end rates
Average rates
2009
2008
2009
2008
0.6977
2.2398
0.7094
2.1840
0.7170
2.3173
0.6797
2.0924
72.7309
71.1999
72.6817
64.4330
3.7495
0.6278
0.7090
5.5051
3.7495
0.6907
0.7090
5.5375
3.7495
0.6386
0.7090
5.5776
3.7495
0.5390
0.7090
5.4557
The Jordanian Dinar and Saudi Riyal have no impact on the statement of comprehensive income as those currencies are pegged against the US Dollar.
109
29. Financial policies for risk management and their objectives continued
2009
Functional currency of entity:
– Jordanian Dinar
– Euro
– Algerian Dinar
– Saudi Riyal
– Sudanese Pound
– Egyptian Pound
Sensitivity analysis:
2009
Functional currency of entity:
– Jordanian Dinar
– Euro
– Algerian Dinar
– Saudi Riyal
– Sudanese Pound
– Egyptian Pound
2008
Functional currency of entity:
– Jordanian Dinar
– Euro
– Algerian Dinar
– Saudi Riyal
– Sudanese Pound
– Egyptian Pound
US Dollar
$000’s
Euro
$000’s
Sterling
$000’s
Algerian Dinar
$000’s
Japanese Yen
$000’s
Others
$000’s
Net foreign currency financial assets/(liabilities)
43,147
(5,612)
(1,816)
–
(36,699)
(929)
2,092
1,107
(10,527)
(1,972)
–
840
(5,775)
(4,594)
100
–
(2)
(11)
–
1
88
(551)
1,756
–
–
–
–
–
380
(1,783)
–
–
–
–
–
–
–
–
(7)
380
(2,334)
1,749
Impact on statement of comprehensive income assuming 1% appreciation
of foreign currency against functional currency as at year end
US Dollar
$000’s
Euro
$000’s
Sterling
$000’s
Algerian Dinar
$000’s
Japanese Yen
$000’s
Others
$000’s
431
(18)
(367)
21
(105)
(20)
(58)
(56)
–
(9)
11
–
8
(46)
1
–
–
–
–
–
1
–
–
–
4
–
–
4
(6)
–
–
(18)
–
–
18
–
–
–
–
–
(24)
18
US Dollar
$000’s
Euro
$000’s
Sterling
$000’s
Algerian Dinar
$000’s
Japanese Yen
$000’s
Others
$000’s
Net foreign currency financial assets/(liabilities)
(701)
(24)
33,112
(7,068)
(1,143)
(31,718)
(2,085)
(13,697)
–
(43)
813
–
374
435
509
–
(2)
(15)
–
–
–
–
–
–
–
543
(70)
–
–
–
–
(15,157)
(5,863)
492
543
(771)
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–
–
–
(29)
(53)
110
Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
29. Financial policies for risk management and their objectives continued
Sensitivity analysis:
2008
Functional currency of entity:
– Jordanian Dinar
– Euro
– Algerian Dinar
– Saudi Riyal
– Sudanese Pound
– Egyptian Pound
Liquidity risk of assets (liabilities)
2009
Cash and cash equivalents
Trade receivables
Interest bearing loans and borrowings
Interest bearing overdrafts
Interest bearing finance lease
Trade payables
2008
Cash and cash equivalents
Trade receivables
Interest bearing loans and borrowings
Interest bearing overdrafts
Interest bearing finance lease
Trade payables
Impact on statement of comprehensive income assuming 1% appreciation
of foreign currency against functional currency as at year end
US Dollar
$000’s
Euro
$000’s
Sterling
$000’s
Algerian Dinar
$000’s
Japanese Yen
$000’s
Others
$000’s
331
(11)
(317)
(21)
(137)
4
(151)
(71)
–
–
8
–
4
(59)
5
–
–
–
–
–
5
–
–
–
5
–
–
5
(7)
–
–
(1)
–
–
(8)
–
–
–
–
–
–
–
Less than
one year
$000’s
More than
one year
$000’s
Total
$000’s
65,663
203,250
–
–
65,663
203,250
(44,393)
(116,119)
(160,512)
(15,924)
–
(15,924)
(2,274)
(7,473)
(9,747)
(57,307)
–
(57,307)
149,015
(123,592)
25,423
Less than
one year
$000’s
More than
one year
$000’s
Total
$000’s
62,727
173,958
–
–
62,727
173,958
(97,056)
(110,414)
(207,470)
(20,244)
–
(20,244)
(1,512)
(6,173)
(7,685)
(42,632)
–
(42,632)
75,241
(116,587)
(41,346)
At 31 December 2009 the Group had undrawn facilities of USD 193,152,058 (2008: USD 120,800,000). USD 95,451,783 (2008: USD 33,000,000)
of these was committed and the remainder was uncommitted.
111
30. Derivative financial instruments
Currency derivatives
The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is party to a variety of foreign currency
forward contracts and options in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the
currencies of the Group’s principal markets.
At the balance sheet date the Group was not committed to any outstanding forward exchange contracts.
The total notional amount of outstanding forward foreign exchange contracts that the Group was committed to, have been translated
at 31 December exchange rates as below.
Foreign exchange forward contracts and options (Euro)
Foreign exchange forward contracts (Yen)
2009
$000’s
–
–
2008
$000’s
3,552
443
These arrangements are designed to address significant exchange exposures.
At 31 December 2008 the fair value of the Group’s currency derivatives all of which were designated as effective cash flow hedges was an asset
of USD 382,000. The movement in fair value in the year resulted in a loss of USD 382,000 (2008: USD 407,000 net gain) which has been reflected
in equity. These amounts were based on market values of equivalent instruments at the balance sheet date.
The Group believes that the effect on the value of cash flow hedges of currency and interest rate fluctuations is not significant and will not
materially affect the financial position of the Group.
Interest rate swaps
The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. These contracts have nominal values
of USD 34.4 million (2008: USD 22.8 million) and have fixed interest payments at rates ranging from 1.91% to 4.75% (2008: 3.9% to 4.75[%]) for
periods up until 2016 and have floating interest receipts at LIBOR or EURIBOR.
The fair value of swaps entered into by the Group is estimated as a liability of USD 932,000 (2008: liability of USD 896,000). These amounts are
based on market values provided by the banks that originated the swaps and are based on equivalent instruments at the balance sheet date. Some of
these interest rate swaps are designated as effective cash flow hedges and the movement in fair value totalling a gain of USD 180,000 (2008: USD loss
of 485,000) has been reflected in equity. The remaining outstanding interest rate swaps that the Group was committed to at year end are held at fair
value through profit and loss. A loss of USD 216,000 has been recognised in the statement of comprehensive income for the year ended 31 December
2009 (2008: loss of [USD] 329,000) in respect of such derivatives.
The Group believes that the effect on the value of interest rate swaps by interest rate fluctuations will not materially affect the financial position of
the Group.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
31. Share capital
Authorised:
500,000,000 Ordinary Shares of 10p each
Issued and fully paid – included in shareholders’ equity:
At 1 January
Issued during the year
At 31 December
2009
$000’s
2008
$000’s
88,700
88,700
2009
Number ‘000
$000’s
Number ‘000
2008
$000’s
189,238
33,857
170,734
30,229
2,390
379
18,504
3,628
191,628
34,236
189,238
33,857
On 17 January 2008, a total of 17,000,000 new Ordinary Shares of 10 pence each in the Group were placed at a price of 480 pence per share, raising
gross proceeds of approximately GBP 81.6 million (USD 160.3 million). As part of the Placing 5.23 million shares were placed with Darhold Limited at
the Placing Price and 333,000 shares were placed with the Darwazah family and other connected individuals at the Placing Price. The total number of
shares issued represents 9.96% of Hikma’s issued ordinary share capital prior to the placing.
In 2008 the Group used the proceeds from the placing to reduce borrowings incurred in connection with its JOD 116.0 million (USD 163.8 million)
acquisition of Arab Pharmaceutical Manufacturing Company thereby providing the Group with increased flexibility to finance future growth.
The cost of the 2008 placing which amounted to USD 2,484,000 was offset against share premium.
32. Non-controlling interest
At 1 January
Non-controlling interest share of profit/(loss)
Other movements including dividends paid
Currency translation loss
At 31 December
2009
$000’s
5,786
1,635
–
(49)
2008
$000’s
6,177
(6)
(385)
–
7,372
5,786
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33. Own shares
Own shares represent 450,000 (2008: 250,000) Ordinary Shares in the Company held by Lloyds TSB Offshore Trust, an independent trustee, having
a market value at 31 December 2009 of GBP 2,295,000 (2008: 875,000). The consideration paid to acquire those shares was USD 2,203,000
(2008: USD 1,124,000).The trust holds these shares to meet long-term commitments in relation to employee share plans.
34. Net cash from operating activities
Profit before tax
Adjustments for:
Depreciation and amortisation of:
Property, plant and equipment
Intangible assets
Losses/(gains) on disposal of property, plant and equipment
Gains on disposal of intangible assets
Movement on provisions
Movement on deferred income
Cost of equity settled employee share scheme
Finance income
Interest and bank charges
Cash flow before working capital
Change in trade and other receivables
Change in other current assets
Change in inventories
Change in trade and other payables
Change in other current liabilities
Cash generated by operations
Income tax paid
Net cash generated from operating activities
2009
$000’s
2008
$000’s
94,787
64,034
25,199
25,067
8,949
8,055
236
(903)
761
(201)
4,616
(514)
(6)
(832)
917
416
3,384
(817)
12,827
17,545
145,757
117,763
(29,949)
(10,903)
(190)
1,564
(8,278)
(19,327)
24,262
(693)
3,164
(5,751)
134,766
82,653
(15,787)
(7,684)
118,979
74,969
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
35. Contingent liabilities
The Group was contingently liable for letters of guarantee and letters of credit totalling USD 62.4 million (2008: USD 23.6 million).
The integrated nature of the Group’s worldwide operations, involving significant investment in research and strategic manufacture at a limited
number of locations, with consequential cross-border supply routes into numerous end-markets, gives rise to complexity and delay in negotiations
with revenue authorities as to the profits on which individual Group companies are liable to tax. Disagreements with, and between, revenue authorities
as to intra-Group transactions, in particular the price at which goods and services should be transferred between Group companies in different tax
jurisdictions, can produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories. Resolution of such issues
is ongoing.
In common with many other companies in the pharmaceutical industry the Group is involved in various legal proceedings considered typical to its
business, including litigation relating to employment, product liability and other commercial disputes.
In particular, West-ward Pharmaceutical Corp. is a co-defendant, with four other generic pharmaceutical manufacturers, in litigation brought
by Mutual Pharmaceutical Company, Inc. regarding the continued sale by West-ward and the others of generic oral colchicine in the United States,
following the approval by the FDA of Mutual’s “ColcrysTM” colchicine product (the “Claim”). Pursuant to the Claim, Mutual alleges unfair competition
and false advertising by the Defendants in respect of their sale of oral colchicine, and seeks damages for loss of sales. The Claim was filed in the United
States District Court for the Central District of California and subsequently, on petition by the Defendants, transferred to the United States District Court
for the District of New Jersey. At the same time as the transfer of the Claim to the District of New Jersey, the Court denied a preliminary injunction that
Mutual had sought to prevent the Defendants from continuing their alleged unfair competition and false advertising pending the final outcome of
the Claim, finding that Mutual had not demonstrated a substantial likelihood of success on the merits. Discovery is ongoing, and on 12 March 2010,
the Court made a scheduling order for the purpose of setting a final schedule to govern further proceedings in the case.
This matter remains subject to substantial uncertainties. As this litigation is at an early stage, it is also not practicable to make a reasonable estimate
of the possible financial effect, if any, that could arise. Management has assessed and considered all the relevant facts of the litigation and having done
so does not consider that a provision is required to be made in respect of the Claim (see note 3).
36. Share-based payments
Equity settled share option scheme
During the year ended 31 December 2009 and 2008, the Company had one stock option compensation scheme settled by equity instruments, with
four separate grant dates. The options over these instruments are settled in equity once exercised.
Details of the grants under the scheme are shown below:
2008
Type of arrangement
General employee share option plan
Date of grant
Number granted
Contractual life
4 November 2008
85,000
10 years
Vesting conditions
20% per year for five years beginning on the first anniversary of the grant date
The estimated fair value of each share option granted in the general employee share option plan is $1.14. This was calculated by applying a binomial
option pricing model. The model inputs were the share price at grant date of $5.45, exercise price of $5.45, expected volatility of 34.9%, expected
dividend yield of 1.21%, expected average contractual life of 4 years, and a risk-free interest rate of 4.11%. It was assumed that each Option tranche
will be exercised within one year of the date of vesting.
2008
Type of arrangement
General employee share option plan
Date of grant
Number granted
Contractual life
29 April 2008
1,041,500
10 years
Vesting conditions
20% per year for five years beginning on the first anniversary of the grant date
The estimated fair value of each share option granted in the general employee share option plan is $2.61. This was calculated by applying a binomial
option pricing model. The model inputs were the share price at grant date of $9.19, exercise price of $9.19, expected volatility of 31.5%, expected
dividend yield of 0.08%, expected average contractual life of 3.8 years, and a risk-free interest rate of 4.54%. It was assumed that each Option tranche
will be exercised within one year of the date of vesting apart from the final Option tranche which will be exercised immediately on vesting given the five
year time scale.
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36. Share-based payments continued
2005
Type of arrangement
General employee share option plan
Date of grant
Number granted
Contractual life
13 October 2005
1,600,000
10 years
Vesting conditions
20% per year for five years beginning on the first anniversary of the grant date
The estimated fair value of each share option granted in the general employee share option plan is $0.74. This was calculated by applying a binomial
option pricing model. The model inputs were the share price at grant date of $4.50, exercise price of $4.50, expected volatility of 26.2%, expected
dividend yield of 6.67%, expected contractual life of 7.5 years, and a risk-free interest rate of 4.54%. To allow for the effects of early exercise, it was
assumed that the employees would exercise the options immediately after vesting date.
2004
Type of arrangement
General employee share option plan
Date of grant
Number granted
Contractual life
12 October 2004
9,520,000
10 years
Vesting conditions
20% per year for five years beginning on the first anniversary of the grant date
The estimated fair value of each share option granted in the general employee share option plan is $0.35. This was calculated by applying a binomial
option pricing model. The model inputs were the share price at grant date of $0.91, exercise price of $0.91, expected volatility of 44.8%, expected
dividend yield of 3.85%, expected contractual life of 7.5 years, and a risk-free interest rate of 4.22%. To allow for the effects of early exercise, it was
assumed that the employees would exercise the options immediately after vesting date.
Further details of the general employee share option plan are as follows:
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2009
Weighted
average
exercise
price (in $)
Number of
shares option
2.73
5.45
6,859,400
1,041,500
Number of
shares option
6,201,800
85,000
(2,390,000)
1.34
(1,503,800)
(251,100)
3,645,700
2,682,900
6.83
3.42
1.85
(195,300)
6,201,800
2,830,400
2008
Weighted
average
exercise
price (in $)
1.43
9.19
1.12
4.47
2.73
1.39
The cost of the equity settled share option scheme of USD 1,245,000 (2008: USD 1,487,000) has been recorded in the statement of comprehensive
income as part of general and administrative expenses.
The weighted average share price at the date of exercise for share options exercised during the year was USD 7.14. The options outstanding at
31 December 2009 had a weighted average remaining contractual life of one year.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three to four years.
Long-term incentive plan
During 2007, 2008 and 2009 year, the Company granted awards under Hikma Long-Term Incentive Plan (“LTIP”) to certain employees. Under the
LTIP, conditional awards of nil cost options are made which vest after three years subject to a total shareholder return (“TSR”) performance condition.
This condition measures the Group’s TSR relative to a comparator group of other pharmaceutical companies. In this case, the vesting schedule dictates
that 20% of awards vest for median performance and 100% for upper quartile performance, with pro-rata vesting in between these points. No awards
vest for performance which is below the median.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
36. Share-based payments continued
Details of the grants under the plan are shown below:
19 May 2009
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
19 May 2009
200,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $3.89. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $6.67;
(d) the volatility of the Company’s share returns of 38.98%;
(e) expected dividend yield of 1.22%; and
(f) the risk-free interest rate for the life of the share award of 1.92%.
19 March 2009
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
19 March 2009
920,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $2.94. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $5.11;
(d) the volatility of the Company’s share returns of 38.98%;
(e) expected dividend yield of 1.47%; and
(f) the risk-free interest rate for the life of the share award of 1.88%.
29 April 2008
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
29 April 2008
700,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $5.46. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $9.22;
(d) the volatility of the Company’s share returns of 31.47%;
(e) expected dividend yield of 0.08%; and
(f) the risk-free interest rate for the life of the share award of 4.5%.
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36. Share-based payments continued
10 September 2007
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
10 September 2007
150,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $4.70. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $8.28;
(d) the volatility of the Company’s share returns of 34.64%;
(e) expected dividend yield of 0.075%; and
(f) the risk-free interest rate for the life of the share award of 4.998%.
23 April 2007
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
23 April 2007
466,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $4.47. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $7.69;
(d) the volatility of the Company’s share returns of 34.64%;
(e) expected dividend yield of 0.075%; and
(f) the risk-free interest rate for the life of the share award of 5.45%.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
36. Share-based payments continued
2 April 2007
Type of arrangement
Long-Term Incentive Plan
Date of grant
Number granted
Contractual life
2 April 2007
160,000
10 years
Vesting conditions
After three years subject to a TSR performance condition
The estimated fair value of each share option granted in the LTIP is $4.33. This was calculated by applying the Monte Carlo Simulation methodology for
estimation of the fair value. The model inputs were as follows:
(a) the exercise price of the share award of nil;
(b) the life of the share award of three years;
(c) the current price of the underlying shares on the date of grant of $7.46;
(d) the volatility of the Company’s share returns of 34.64%;
(e) expected dividend yield of 0.075%; and
(f) the risk-free interest rate for the life of the share award of 5.40%.
Further details on the number of shares granted are as follows:
Year 2009
Outstanding at 1 January
Granted during the year
Expired during the year
2009 grants
2008 grants
2007 grants
19-Mar
Number
19-May
Number
29 April
Number
2 April
Number
23 April
Number
10 September
Number
Total
Number
–
–
685,000
160,000
409,000
150,000
1,404,000
920,000
200,000
–
–
–
(35,000)
–
–
–
(45,000)
–
–
1,120,000
(80,000)
Outstanding at 31 December
920,000
200,000
650,000
160,000
364,000
150,000
2,444,000
Year 2008
Outstanding at 1 January
Granted during the year
Expired during the year
Outstanding at 31 December
2008 grant
29 April
Number
2007 grants
2 April
Number
23 April
Number
10 September
Number
Total
Number
–
160,000
453,000
150,000
763,000
700,000
(15,000)
–
–
–
(44,000)
–
–
700,000
(59,000)
685,000
160,000
409,000
150,000
1,404,000
The cost of the long-term incentive plan of USD 2,608,000 (2008: USD 1,897,000) has been recorded in the statement of comprehensive income as
part of general and administrative expenses.
Management incentive plan
During 2009 the Company notified certain employees of their awards under the Hikma Management Incentive Plan (“MIP”). Under the MIP,
conditional awards of nil cost options are made which give the opportunity to grant an award of shares subject to achievement of the employee
Key Performance Indicators (KPIs). This condition measures the employee achievement against set KPIs. In this case, the number of shares awarded
is based on percentage of achievements. No awards vest for achievements below 50%.
The award is subject to a two year holding period during which the employee must remain employed in the Group; at the end of the holding
period the award is released and becomes exercisable.
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36. Share-based payments continued
Details of the grants under the plan are shown below:
19 March 2009
Type of arrangement
Date of notification
Estimated date of grant
Maximum number granted
Contractual life
Vesting conditions
Management Incentive Plan
19 March 2009
March 2010
356,000
10 years
After two years subject to achievement of KPIs
The cost of the management incentive plan of USD 763,000 (2008: USD nil) has been recorded in the statement of comprehensive income as part of
general and administrative expenses.
37. Operating lease arrangements
Minimum lease payments under operating leases recognised in the statement of comprehensive income for the year
3,012
2,334
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:
2009
$000’s
2008
$000’s
Within one year
In the second to fifth years inclusive
After five years
2009
$000’s
1,961
4,044
959
6,964
2008
$000’s
1,742
5,340
1,918
9,000
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a term of 1 to 7.5 years.
38. Related party balances
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions between
the Group and its associate and other related parties are disclosed below.
Trading transactions:
During the year, Group companies entered into the following transactions with related parties:
Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with ownership
percentage of 29.8% at the end of 2009 (2008: 30.2%). Further details on the relationship between Mr. Samih Darwazah, Mr. Said Darwazah,
Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors’ Report.
Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited in the year.
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the consolidated financial statements continued
38. Related party balances continued
Capital Bank – Jordan: is a related party of the Group because during the year one board member of the Bank is also a board member at Hikma
Pharmaceuticals PLC. Total cash balances at Capital Bank – Jordan were USD 3,294,000 (2008: USD 217,000). Loans and overdrafts granted
by Capital Bank to the Group amounted to USD 77,000 (2008: USD 207,000) with interest rates ranging between 8.75% and 3MLIBOR + 3.
Total interest expense incurred against Group facilities was USD 28,000 (2008: USD 86,000). Total interest income received was 37,000
(2008: USD 1,500) and total commission paid in the year was USD 17,000 (2008: USD 11,300).
Jordan International Insurance Company: is a related party of the Group because one board member of the company is also a Board member
at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the year were
USD 1,686,000 (2008: USD 1,351,000). The Group’s insurance expense for Jordan International Insurance Company contracts in the year 2009
was USD 2,006,000 (2008: USD 1,490,000). The amounts due to Jordan International Insurance Company at the year end were USD 129,000
(2008: USD 93,000).
Mena Innovative Technology: is a related party because the Group holds a minority stake in this company (see note 18) and because the majority
shareholder is the wife of Mr. Nabil Rizk – a chairman of West-ward Pharmaceuticals.Total purchases during the year were USD nil (2008: USD 1,000).
Purchases were made at market price discounted to reflect the quantity of goods purchased. At 31 December 2009, the Group has no outstanding
balance with Mena Innovation Technology (2008: USD nil).
Tunisian Companies: Amounts due from the two Tunisian companies the Group has invested in net of provisions are USD 491,000 (2008: USD 474,000)
and USD 1,052,000 (2008: USD 793,000) due from Societe Hikma Medicef Limited-Tunisia and Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A.
– Tunisia, respectively. The provision for doubtful debts related to balances above was USD 327,000 (2008: USD 303,000).
Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the Group because he holds a non-controlling interest in Hikma Lebanon of 33%,
the amount owed to Mr. Yousef by the Group as at 31 December 2009 was USD 279,000 (2008: USD 161,000).
Labatec – Pharma SA: is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2009 the Group total sales to Labatec –
Pharma SA amounted to USD 42,000 (2008: 30,000) and the Group total purchases from Labatec amounted to USD 393,000. At 31 December 2009
the amount owed to Labatec Pharma by the Group was USD 149,000 (2008: nil).
King and Spalding: is a related party of the Group because the partner of the firm is a board member and a company secretary of West-ward.
King and Spalding is an outside legal counsel firm that handles general legal matters for West-ward. During 2009 fees of USD 55,000 (2008: 217,000)
were paid for legal services provided.
Remuneration of key management personnel
The remuneration of the key management personnel (comprising the Executive and Non-Executive Directors and certain of senior management as
set out in the Directors’ report) of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee Report on
pages 64 to 70.
Short-term employee benefits
Share-based payments
Post employment benefits
2009
$000’s
5,918
2,002
31
7,951
2008
$000’s
5,363
1,312
61
6,736
121
Ownership %
Ordinary Shares
2009
Ownership %
Ordinar Shares
2008
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
Established in
Jordan
Jordan
Algeria
Portugal
USA
Sudan
Egypt
Germany
Germany
Italy
KSA
39. Hikma Pharmaceuticals PLC main subsidiaries
The main subsidiaries of Hikma Pharmaceuticals PLC are as follows:
Company’s name
Hikma Pharmaceuticals Limited
Arab Pharmaceutical Manufacturing Co. (“APM”)
Hikma Pharma Algeria SARL
Hikma Farmaceutica S.A.
West-ward Pharmaceuticals Corp.
Pharma Ixir Co.Ltd
Hikma Pharma SAE
Thymoorgan Pharmazie GmbH
Hikma Pharma GmbH
Hikma Italia S.p.A
Al Jazeera Pharmaceutical Industries Ltd (“JPI”)
40. Hikma Pharmaceuticals PLC defined contribution retirement benefit plan
Hikma Pharmaceuticals PLC has defined contribution retirement plans in two of its subsidiaries: West-ward Pharmaceuticals Corp and Hikma
Pharmaceuticals Limited Jordan. The details of each contribution plan are as follows:
Hikma Pharmaceuticals Limited – Jordan:
The Group currently has an employee saving plan wherein the Group fully matches employees’ contributions, which are fixed at 5% of salary.
Employees are entitled to 30% of the Group contributions after three years of employment with the Group and an additional 10% for each
subsequent year. Employees fully vest in the Group contributions after 10 years of employment. The Group’s contributions for the year ended
31 December 2009 were USD 673,000 (2008: USD 613,000).
West-ward Pharmaceuticals Corp: (401 (k) salary saving plan)
Prior to 2001, West-ward Pharmaceuticals Corp established a 401 (k) defined contribution plan, which allows all eligible employees to defer a portion
of their income through contributions to the plan. All employees not covered by any collective bargaining agreement are eligible after being employed
for one year. Employees can defer up to 25% of their gross salary into the plan, not to exceed USD 16,500 and USD 15,500 for 2009 and 2008,
respectively, not including catch-up contributions available to eligible employees as outlined by the Internal Revenue Service. The company matches
40% of the employees’ eligible contribution. Employer contributions do not vest for up to two years of service, 50% after two years of service and
100% after three years of service. Employees are considered to have completed one year of service for purposes of vesting upon the completion of
1,000 hours of service at any time during a plan year. Employer contributions to the plan for the year ended 31 December 2009 were USD 493,000
(2008: USD 365,000).
The assets of the plans are held separately from those of the Group. The only obligation of the Group with respect to the retirement benefit plans
is to make specified contributions.
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Company balance sheet
at 31 December 2009
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Hikma Pharmaceuticals PLC Annual report 2009
Non-current assets
Investment in subsidiaries
Due from subsidiaries
Intangible assets
Property, plant and equipment
Current assets
Other current assets
Cash and cash equivalents
Due from subsidiaries
Accounts receivable
Total assets
Current liabilities
Other payables
Other current liabilities
Short-term debt
Due to subsidiaries
Net current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Own shares
Retained earnings
Equity attributable to equity holders to the parent
Notes
43
44
45
44
46
47
48
2009
$000’s
2008
$000’s
1,523,127
1,523,127
26,678
70,158
196
165
246
321
1,550,166
1,593,852
481
161
6,428
13,176
104,316
108,383
154
42
111,379
121,762
1,661,545
1,715,614
292
1,649
201
1,588
–
40,000
592,923
592,801
594,864
634,590
483,485
512,828
594,864
634,590
1,066,681
1,081,024
53
54
34,236
33,857
980,154
977,342
(2,203)
(1,124)
55
54,494
70,949
1,066,681
1,081,024
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557954, were approved by the Board of Directors and signed on its
behalf by:
Said Darwazah
Chief Executive Officer
16 March 2010
123
Company statement of changes in equity
for the year ended 31 December 2009
At 1 January 2008
Issue of share capital
Own shares
Cost of equity settled employee share scheme
Net profit for the year
Dividends paid
Paid up
capital
$000’s
Share
premium
$000’s
Retained
earnings
$000’s
Own
shares
$000’s
Total
$000’s
30,229
821,428
79,588
3,628
155,914
–
–
–
–
–
–
–
–
–
–
3,384
2,128
(14,151)
–
–
931,245
159,542
(1,124)
(1,124)
–
–
–
3,384
2,128
(14,151)
At 31 December 2008/1 January 2009
33,857
977,342
70,949
(1,124) 1,081,024
Issue of share capital
Own shares
Cost of equity settled employee share scheme
Net loss for the year
Dividends paid
At 31 December 2009
379
2,812
–
–
–
–
–
–
–
–
–
–
–
3,191
(1,079)
(1,079)
4,616
(4,953)
(16,118)
–
–
–
4,616
(4,953)
(16,118)
34,236
980,154
54,494
(2,203) 1,066,681
As permitted by Section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part
of these accounts.
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Hikma Pharmaceuticals PLC Annual report 2009
Company cash flow statement
for the year ended 31 December 2009
(Loss)/profit before tax
Cost of equity settled employee share scheme
Finance income
Interest and bank charges
Change in other current assets
Change in other payables
Depreciation of property, plant and equipment
Amortisation of intangible assets
Losses on disposal of property, plant and equipment
Change in accounts receivable
Change in amounts due from/to subsidiaries
Change in other current liabilities
Net cash from operating activities
Investing activities
Change in amounts due from/(to) subsidiaries
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Interest income
Net cash from/(used in) investing activities
Financing activities
Proceeds from share issuance
Costs of share issue
Decrease in short-term debts
Interest paid
Purchase of own shares
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
2009
$000’s
(4,953)
998
(3,056)
958
(320)
91
158
51
–
(112)
2008
$000’s
2,128
709
(2,864)
1,410
716
(775)
168
1
5
(27)
7,807
201,896
(213)
(444)
1,409
202,923
43,480
(179,475)
(3)
–
–
3,056
(40)
4
(247)
2,864
46,533
(176,894)
3,191
162,026
–
(2,484)
(40,000)
(158,000)
(684)
(1,524)
(1,079)
(1,124)
(16,118)
(14,151)
(54,690)
(15,257)
(6,748)
10,772
13,176
2,404
6,428
13,176
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Notes to the Company financial statements
41. Adoption of new and revised Standards
The impact on the company of new and revised standards is the same as for the Group. Details are given in Note 1 to the consolidated
financial statements.
42. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with International Financial Reporting Standards and UK company law.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in
Note 2 to the consolidated financial statements with the addition of the policy as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
43. Investment in subsidiaries
Investment in subsidiaries represents the following:
Company’s name
Hikma Pharma Limited – Jersey
Hikma Holdings (UK) Limited
Al Jazeera Pharmaceutical Industries Ltd (“JPI”)
Hikma Pharmaceuticals Limited
*The remaining shares are held by other Group companies.
Ownership%
Ordinary Shares
2009
Ownership%
Ordinary Shares
2008
Established in
UK
UK
K.S.A
Jordan
100
100
52.5*
22.8*
100
100
52.5*
22.8*
On 23 July 2008 a loan of USD 169,760,000 from the Company to Hikma Pharmacuticals Limited – Jordan was converted to equity, giving the
Company a 22.8% share.
The investments in subsidiaries are all stated at cost.
44. Due from subsidiaries
Non-current assets
Hikma Investment
West-ward Pharmaceuticals Corp
Hikma Italia S.p.A
Hikma Pharma Limited – Jersey
As at 31 December
2009
$000’s
2008
$000’s
8,160
55,459
8,424
4,420
5,674
8,000
4,234
2,465
26,678
70,158
These balances represent loans that carry interest of 2.2% to 4.8% (2008: 3.9% to 4.8%) per annum charged on the outstanding loan balances.
Current assets
Due from Hikma Pharma Limited – Jersey
Due from Hikma Pharmaceuticals – Jordan
Due from Hikma Farmaceutica – Portugal
Due from Hikma Pharma – Germany
Due from Hikma UK Limited
Due from Hikma Limited
Others
As at 31 December
2009
$000’s
2008
$000’s
4,431
2,736
–
445
883
97
208
587
96,707
103,544
306
1,544
429
782
104,316
108,383
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the Company financial statements continued
45. Financial assets
Cash and cash equivalents
These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying amount of
these assets approximates to their fair value.
46. Financial liabilities
Other payables
The directors consider that the carrying amount of other payables approximates to their fair value.
47. Short-term debt
As at 31 December 2009 there was no outstanding short-term debt. Short-term debt at 31 December 2008 represents the drawdown of
USD 40 million under a USD 60 million credit line.
48. Due to subsidiaries
Due to subsidiaries represents an amount due to Hikma Holdings (UK) Ltd which is a non interest bearing loan repayable on demand.
49. Financial policies for risk management and their objectives
Currency risk
Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and
being of a monetary nature. The following table illustrates financial assets and liabilities for the Company in different currencies:
Euro
GBP
2009
$000’s
87
788
Liabilities
2008
$000’s
88
1,042
2009
$000’s
(30)
183
Assets
2008
$000’s
162
193
A sensitivity analysis based on a 1% movement in foreign exchange rates has no material impact on the Company results and Company statement
of changes in equity.
Further details on how the Company manages the currency risk are given in Note 29 to the Group accounts.
Interest rate risk
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December
2009, with all other variable held constant. Based on the composition of our debt portfolio as at 31 December 2009, a 1% increase in interest rates
would result in no additional interest expense being incurred per year (2008: USD 400,000).
49. Financial policies for risk management and their objectives continued
Liquidity risk:
2009
Cash and cash equivalents
Trade receivables
Trade payables
2008
Cash and cash equivalents
Trade receivables
Interest bearing loans and borrowings
Trade payables
127
Less than
one year
$000’s
Total
$000’s
6,428
6,428
154
(292)
154
(292)
6,290
6,290
Less than
one year
$000’s
Total
$000’s
13,176
13,176
42
42
(40,000)
(40,000)
(201)
(201)
(26,983)
(26,983)
The Company believes that given the Group’s forecast operating cash flow during 2010, it has the ability to satisfy its liability commitments.
50. Staff costs
Hikma Pharmaceuticals PLC currently has six employees (2008: seven) (excluding Executive Directors); total compensation paid to them amounted to
USD 1,334,000 (2008: USD 1,361,000) of which salaries and wages compromise an amount of USD 1,007,000 (2008: USD 1,014,000) the remaining
balance of USD 327,000 (2008: USD 347,000) represent national insurance contributions, the cost of share-based payments and other benefits.
51. Stock options
The details of the stock compensation scheme are provided in Note 36 to the Group accounts. The number of options granted to the employees of the
Company (including directors) was 2,560,000 (2008: 2,600,000) and the total amount of the compensation expenses charged to income statement is
USD 194,600 (2008: USD 196,400).
52. Long-Term Incentive Plans (LTIPs)
The details of the LTIP scheme are provided in Note 36 to the Group accounts. The number of awards granted to the employees of the Company
(including directors) was 656,000 shares (2008: 391,000) and the total amount of the compensation expenses charged to income statement is
USD 803,680 (2008: USD 513,037).
53. Share capital
Authorised:
500,000,000 ordinary shares of 10p each
191,627,607 (2008: 189,237,607) Ordinary Shares of 10p each
The details of the issue of the share capital in the year are given in Note 31 to the Group accounts.
2009
USD 000’s
2008
USD 000’s
88,700
34,236
88,700
33,857
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Hikma Pharmaceuticals PLC Annual report 2009
Notes to the Company financial statements continued
54. Share premium
Balance at 1 January 2009
Premium arising on exercise of stock options
Balance at 31 December 2009
Share premium
USD 000’s
977,342
2,812
980,154
55. Net income for the year
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part
of these accounts.
Included in the net income for the year is an amount of USD nil (2008: USD 8,000,000) representing dividends received and USD 998,000
(2008: USD 709,000) representing the current year charge of stock option and LTIPs expenses relating to the Company’s employees. The remaining
USD 3,618,000 (2008: USD 2,675,000) of the Group’s stock option and LTIPs charge is recharged to subsidiary companies.
56. Related party
Transactions between the Company and its subsidiaries and associates are disclosed in Note 38.
Amounts repayable to and from subsidiaries are disclosed in Notes 45 and 48.
Other transactions with related parties include management charges for services provided to the subsidiary companies and transactions with key
management personnel. Compensation paid to key management personnel is disclosed at Note 38. Details of directors’ remuneration are disclosed
in the Remuneration Committee Report on pages 64 to 70.
More details on the general information of the ultimate parent of the Group are disclosed in Note 2.
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Shareholder information
2010 financial calendar
Share listings
17 March
2009 preliminary results and final dividend announced
14 April
16 April
13 May
27 May
2009 final dividend ex-dividend date
2009 final dividend record date
Annual General Meeting
2009 final dividend paid to shareholders
26 August*
2010 interim results and interim dividend announced
8 September*
2010 interim dividend ex-dividend date
10 September* 2010 interim dividend record date
14 October*
2010 interim dividend paid to shareholders
*Provisional dates
Shareholding enquiries
Enquiries or information concerning existing shareholdings should be
directed to the Company’s registrars, Capita Registrars either:
in writing to Shareholder Services, Capita Registrars, The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU;
by telephone from within the UK on 0870 162 3100;
by telephone from outside the UK on +44 208 639 2157; or
through the website www.capitaregistrars.co.uk.
In addition to general enquiries – for example changes of address,
change of name, loss of a share certificate – the Registrar can also assist
with the following:
Mandating the dividend payments
Shareholders who currently receive their dividend by cheque can request
a dividend mandate form from the registrar and have their dividend paid
direct into their bank account on the same day as the dividend is paid.
The tax voucher is sent direct to the shareholders registered address.
International Payment System
If you are an overseas shareholder the Registrar is now able to pay
dividends in several foreign currencies for an administrative charge of
£5.00, which is deducted from the payment. Contact the registrar for
further information.
Dividend Payments – Currency elections
The Company declares dividends in US Dollar. However, shareholders
can opt to receive the dividend in Pounds Sterling. The Company will
no longer be distributing currency election forms for each dividend,
so if you wish to change the currency in which you receive your dividend
you must write to the registrars at the above address.
Website
Press releases, the share price and other information on the Group are
available on the Company’s website www.hikma.com.
London
The Company’s Ordinary Shares are admitted to the Official List of the
London Stock Exchange. They are listed under EPIC – HIK, SEDOL –
B0LCW08 GB and ISIN – GB00B0LCW083.
Further information on this market, its trading systems and current
trading in Hikma Pharmaceuticals PLC shares can be found on the
London Stock Exchange website www.londonstockexchange.com.
Global Depository Receipts
The Company also has listed Global Depository Receipts (“GDRs”) on
NasdaqDubai. They are listed under EPIC – HIK and ISIN – US4312882081.
Further information on NasdaqDubai, its trading systems and current
trading in Hikma Pharmaceuticals PLC GDRs can be found on the website
www.nasdaqdubai.com.
American Depository Receipt (ADRs)
Hikma Pharmaceuticals PLC has an ADR programme for which Bank
of New York Mellon acts as Depositary. One ADR equates to 2 Hikma
Ordinary Shares. ADRs are traded as a level 1 Over-the-Counter (OTC)
programme under the symbol HKMPY. Enquiries should be made to:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
Telephone:
Telephone:
Email:
+1 201 680 6825
+1 888 BNY ADRS (toll-free within the US)
shrrelations@bnymellon.com
Shareholder fraud
The Financial Services Authority has issued a number of warnings to
shareholders regarding boiler room scams. Over the last year many
companies have become aware that shareholders have received unsolicited
phone calls or correspondence concerning investment matters. These are
typically from overseas based ‘brokers’ who target UK shareholders,
offering to sell them what often turn out to be worthless or high risk
shares in US or UK investments. These operations are commonly known
as boiler rooms. These brokers can be very persistent and extremely
persuasive. Shareholders are advised to be very cautious of unsolicited
advice, offers to buy shares at a discount or offers of free company
reports. If you receive any unsolicited investment advice:
Obtain the correct name of the person and organisations.
Check they are authorised by the FSA by looking the firm up on
www.fsa.gov.uk/register.
Report the matter to the FSA either by calling 0845 606 1234 or visit
www.moneymadeclear.fsa.gov.uk.
If the caller persists, hang up.
Details of the share dealing facilities sponsored by the Company are
included in Company mailings and are on the Company website.
The Company’s website is www.hikma.com and the registered
office is 13 Hanover Square, London, W1S 1HW. Telephone number
+ 44 207 399 2760.
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Hikma Pharmaceuticals PLC Annual report 2009
Shareholder information continued
Articles of Association
The Articles of Association of the Company (the “Articles”) are the
internal rules by which the Company is governed, covering matters such
as the removal and appointment of directors and the powers and rights
of shareholders. The Articles can only be changed by special resolution
of the shareholders.
The Company is proposing to adopt new Articles to take account of:
changes to the law and practice since the existing Articles were
last updated;
the Companies (Shareholders’ Rights) Regulations 2009;
the implementation on 1 October 2009 of the last parts of the
Companies Act 2006..
The principal changes introduced in the new Articles are summarised in
Appendix A of the Notice of Annual General Meeting accompanying this
document. Other changes, which are of a minor, technical or clarifying
nature and also some more changes which merely reflect changes made
by the Companies Act 2006 and the Companies (Shareholders’ Rights)
Regulations 2009 have not been noted in Appendix A. The new Articles,
showing all the changes from the existing Articles are available for
inspection at the Company’s registered office – 13 Hanover Square,
London W1H 1SW – during normal business hours on Monday to
Friday. They are also available at the offices of Ashurst LLP, Broadwalk
House, 5 Appold Street, London EC2A 2HA during normal business
hours on Monday to Friday, in each case from the date of the Notice of
Annual General Meeting until the close of the Annual General Meeting
(Saturdays, Sundays and public holidays excepted). They will also
be available for inspection at the place of the meeting for at least
15 minutes prior to and during the meeting.
Principal Group companies
Hikma Pharmaceuticals PLC
West-ward Pharmaceutical Corporation
Registered in England and Wales number 5557934
Registered office:
13 Hanover Square
London W1S 1HW
UK
Telephone: +44 (0)20 7399 2760
Facsimile: +44 (0)20 7399 2761
E-mail: susan.ringdal@hikma.uk.com
www.hikma.com
465 Industrial Way West
Eatontown
New Jersey 07724
USA
Telephone: +1 732 542 1191
Facsimile: +1 732 542 6150
Hikma Pharmaceuticals Limited
Hikma Farmacêutica S.A.
P.O. Box 182400
11118 Amman
Jordan
Telephone: +962 6 5802900
Facsimile: +962 6 5827102
Estrada Rio Da Mo no. 8
8A, 8B – Fervença
2705-906 Terrugem SNT
Portugal
Telephone: +351 21 9608410
Facsimile: +351 21 9615102
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Hikma Pharmaceuticals PLC Annual report 2009
Advisers
Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ
UK
Brokers
Citigroup Global Markets Limited
Citigroup Centre
Canada Square
London E14 5LB
UK
Merrill Lynch
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
UK
Legal Advisers
Ashurst
Broadwalk House
5 Appold Street
London EC2A 2HA
UK
Public Relations
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED
UK
ADR Depositary Bank
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
USA
About this annual report
Hikma Pharmaceuticals PLC
Since Hikma was founded, we have grown into
a successful multinational pharmaceutical group.
Our business today is diverse in its product line
and the breadth of its geographic coverage.
This diversification will ensure that we maintain
our track record of strong growth
This report is printed on “Look!” paper. This paper is made from virgin wood fibre
from well-managed forests independently certified according to the rules of
the Forest Stewardship Council (FSC). It is manufactured at a mill that is certified to
ISO14001 and EMAS environmental standards. The mill uses pulps that are totally chlorine
free (TCF), and some pulp is bleached using an elemental chlorine fee (ECF) process.
The inks in printing this report are all vegetable-based.
Printed at St Ives Westerham Press Ltd, ISO14001, FSC certified and CarbonNeutral®
For more information visit our website
www.hikma.com
Produced and designed by Radley Yeldar www.ry.com
Hikma Pharmaceuticals PLC
13 Hanover Square
London W1S 1 HW
UK
www.hikma.com
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Hikma Pharmaceuticals PLC Annual report 2009